-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FOFGIQGZMxFyoklsCNqfBgY6bDOX8y89qPd5BBYBI5sN0H6NfpEvbYzN2+B8Ryuj nqInDxFr6AUt/pj+g1axsw== 0000912057-00-014601.txt : 20000331 0000912057-00-014601.hdr.sgml : 20000331 ACCESSION NUMBER: 0000912057-00-014601 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HISPANIC BROADCASTING CORP CENTRAL INDEX KEY: 0000922503 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 990113417 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-24516 FILM NUMBER: 584498 BUSINESS ADDRESS: STREET 1: 3102 OAK LAWN AVENUE STREET 2: STE 215 CITY: DALLAS STATE: TX ZIP: 75219 BUSINESS PHONE: 2145257700 MAIL ADDRESS: STREET 1: 3102 OAK LAWN AVENUE STREET 2: SUITE 215 CITY: DALLAS STATE: TX ZIP: 75219 FORMER COMPANY: FORMER CONFORMED NAME: HEFTEL BROADCASTING CORP DATE OF NAME CHANGE: 19940502 10-K 1 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1999, or / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to _________. COMMISSION FILE NUMBER 0-24516 HISPANIC BROADCASTING CORPORATION (Exact name of registrant as specified in its charter) Delaware 99-0113417 (State of Incorporation) (I.R.S. Employer Identification No.) 3102 Oak Lawn Avenue, Suite 215 Dallas, Texas 75219 Telephone (214) 525-7700 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ___ On March 13, 2000, the aggregate market price of the Class A Common Stock held by non-affiliates of the Company was approximately $2,787.8 million. (For purposes hereof, directors, executive officers and 10% or greater shareholders have been deemed affiliates). On March 13, 2000, there were 40,251,462 outstanding shares of Class A Common Stock, $.001 par value per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 2000 Annual Meeting, expected to be filed within 120 days from the Company's fiscal year-end, are incorporated by reference into Part III. 1 HISPANIC BROADCASTING CORPORATION INDEX TO FORM 10-K
Page Number PART I. Item 1. Business................................................................................... 3 Item 2. Properties................................................................................. 16 Item 3. Legal Proceedings.......................................................................... 17 Item 4. Submission of Matters to a Vote of Security Holders........................................ 17 PART II. Item 5. Market for Registrant's Class A Common Stock and Related Stockholder Matters............... 18 Item 6. Selected Financial Data.................................................................... 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................ 20 Item 7a. Quantitative and Qualitative Disclosures About Market Risk ................................ 25 Item 8. Financial Statements and Supplementary Data ............................................... 26 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................................................ 45 PART III. Item 10. Directors and Executive Officers of the Registrant......................................... 46 Item 11. Executive Compensation..................................................................... 46 Item 12. Security Ownership of Certain Beneficial Owners and Management............................. 46 Item 13. Certain Relationships and Related Transactions............................................. 46 PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................... 47
2 PART I. ITEM 1. BUSINESS GENERAL Hispanic Broadcasting Corporation (the "Company") is the largest Spanish-language radio broadcasting company in the United States and currently owns and programs 45 radio stations in 13 markets. Our stations are located in 12 of the 15 largest Hispanic markets in the United States, including Los Angeles, New York, Miami, San Francisco/San Jose, Chicago, Houston, San Antonio, Dallas/Fort Worth, McAllen/Brownsville/Harlingen, San Diego, Phoenix and El Paso. In addition, we also operate the HBC Radio Network, which is one of the largest Spanish-language radio broadcast networks in the United States in terms of audience delivery. Our strategy is to own and program top performing Spanish-language radio stations, principally in the 15 largest Spanish-language radio markets in the United States. Based on the results of the Fall Arbitron Ratings Book, we operated the leading Spanish-language radio station in the adult 25-54 age group, as measured by audience share, in 10 of the 13 markets where we operated during the fall rating period. Our current strategy is to acquire or develop additional Spanish-language radio stations in the leading Hispanic markets. We frequently evaluate strategic opportunities, both within and outside our existing line of business, that closely relate to serving the Hispanic market, including opportunities outside of the United States. We expect to pursue additional acquisitions from time to time and may decide to dispose of certain businesses. Such acquisitions or dispositions could be material. The following table sets forth certain information regarding the radio stations that we owned and programmed as of December 31, 1999:
No. of Stations Ranking of Market by ----------------- Hispanic Population (a) Market AM FM - ----------------------- ----------------------------- ------ ------ 1 Los Angeles 1 2(b) 2 New York 1 1 3 Miami 2 2 4 San Francisco/San Jose 0 2 5 Chicago 2 1 6 Houston 2 5(c) 7 San Antonio 2 2 8 Dallas/Fort Worth 2 5 9 McAllen/Brownsville/Harlingen 1 2 10 San Diego 0 2 11 Phoenix 0 1(c) 13 El Paso 2 1 26 Las Vegas 1 1 ------ ------ Total 16 27 ====== ======
(a) Ranking of the principal radio market served by the Company's station(s) among all U.S. radio markets by Hispanic population as reported by Strategy Research Corporation - 2000 U.S. HISPANIC MARKET STUDY. (b) This table does not include the acquisition of radio stations KRCD(FM) and KRCV(FM) (formerly KACE(FM) and KRTO(FM)) since they were acquired subsequent to December 31, 1999. (c) Does not reflect our agreement to exchange the assets of KRTX(FM), serving Houston, for the assets of KLNZ(FM), owned by Z-Spanish Media Corporation serving Phoenix, pursuant to our agreement with Z-Spanish, which is now in arbitration. 3 The Company believes Spanish-language radio broadcasting has significant growth potential for the following reasons: - - THE U.S. HISPANIC POPULATION IS GROWING RAPIDLY. The U.S. Hispanic population is expected to grow from an estimated 27.3 million (approximately 10.4% of the total United States population) at the end of 1995 to an estimated 31.4 million (approximately 11.4% of the total United States population) by the year 2000. These estimates imply a growth rate of approximately three times the expected growth rate for the total United States population during the same period. - - THE U.S. HISPANIC POPULATION IS CONCENTRATED IN 15 MARKETS. Approximately 69.8%, or approximately 23.7 million, of all U.S. Hispanics live in these markets. The U.S. Hispanic population in the top fifteen markets, as a percentage of the total population in such markets, has increased from approximately 17.0% in 1980 to approximately 27.3% in 2000. The percentage concentration of Hispanics in the top fifteen markets is more than twice the percentage of Hispanics in the U.S. as a whole. Since 1980, the Hispanic population growth has represented approximately 52.2% of the total population growth in the top fifteen Hispanic markets. - - U.S. HISPANICS REPRESENT AN ATTRACTIVE CONSUMER MARKET. Advertisers target Hispanics because, on average, they are younger, their households are larger in size and they routinely spend a greater percentage of their income on many different kinds of goods and services than do non-Hispanic households. The Company believes that, as a result, advertisers have substantially increased their use of Spanish media. Total Spanish-language advertising revenues have increased from approximately $952.8 million in 1994 to an estimated $1.9 billion in 1999. This represents a compound annual growth rate of approximately 14.7%, which is substantially greater than the estimated growth rate for total advertising for the comparable period. The Company was incorporated under the laws of the State of Delaware in 1992. The Company's principal executive offices are located at 3102 Oak Lawn Avenue, Suite 215, Dallas, Texas 75219 and the telephone number is (214) 525-7700. The Company's board of directors and stockholders recently approved an amendment to the Company's certificate of incorporation to change the name of the Company from "Heftel Broadcasting Corporation" to "Hispanic Broadcasting Corporation." The ticker symbol for the Company's Class A Common Stock remained "HBCCA" following the name change. Furthermore, the change in the Company's name did not affect the validity or transferability or its outstanding securities or affect its capital or corporate structure and its stockholders were not required to exchange any certificates representing any of its securities held by them. RECENT DEVELOPMENTS On March 4, 2000, the Company entered into an agreement with Clear Channel Broadcasting, Inc., Clear Channel Broadcasting Licenses, Inc., AMFM Radio Licenses LLC, AMFM Ohio, Inc. and AMFM Houston, Inc. to purchase for approximately $127.0 million, the assets of KXPK(FM), KKFR(FM) and KEYI(FM), serving the Denver, Phoenix and Austin markets, respectively. The Company plans to spend approximately $4.0 million for new studios and other costs to operate these new radio stations. The closing of this asset acquisition is expected to occur during the third quarter of 2000. Immediately after closing, the programming of KXPK(FM) and KEYI(FM) will be converted to a Spanish-language format. The present audience of KKFR(FM) includes a large proportion of Hispanics and the programming will continue in its present format after closing. The closing of this transaction is subject to numerous conditions and approvals, including receipt of regulatory approvals under the federal communication laws, review by federal antitrust authorities, and completion of Clear Channel's merger with AMFM Inc. 4 KRCD(FM) AND KRCV(FM) ACQUISITION. On October 15, 1999, the Company entered into an asset purchase agreement with Cox Radio, Inc. to acquire for $75.0 million the assets of KRCD(FM) and KRCV(FM) (formerly KACE(FM) and KRTO(FM)), serving the Los Angeles market (the "Los Angeles Acquisition"). The Los Angeles Acquisition closed on January 31, 2000. The stations' programming was converted to a single Spanish-language format in February 2000. KLNO(FM) ACQUISITION. On July 6, 1999, the Company entered into an agreement to acquire from SBT Communications Statutory Trust for $65.0 million, the FCC licenses and transmission equipment of a radio station broadcasting at 94.1 MHz (KLNO(FM)), serving the Dallas/Fort Worth market (the "Dallas Acquisition"). The Dallas Acquisition closed September 24, 1999. With the Dallas Acquisition, the Company assumed a time brokerage agreement whereby an unaffiliated party provided the programming to the radio station broadcasting at 94.1 MHz until January 31, 2000. Immediately after the time brokerage agreement terminated, the station's programming was converted to a Spanish-language format. KSCA(FM) ACQUISITION. On January 2, 1997, the Company acquired an option to purchase all of the assets used in connection with the operation of KSCA(FM), a radio station serving the Los Angeles market (the "KSCA Option"). In connection with the acquisition of the KSCA Option, the Company began providing Spanish-language programming to KSCA(FM) under a time brokerage agreement on February 5, 1997. The Company exercised the KSCA Option and on September 17, 1999, the Company acquired the assets of KSCA(FM) for $118.1 million. The Company had previously paid $13.0 million to acquire and renew the option to purchase the assets of KSCA(FM) and such payments were subtracted from the purchase price at closing. KISF(FM) ACQUISITION. The Company entered into an asset purchase agreement with Radio Vision, Inc. and George E. Tobin on March 1, 1999, to acquire the assets of KISF(FM) serving the Las Vegas market (the "Las Vegas Acquisition") for $20.3 million. The Las Vegas Acquisition closed on April 30, 1999. Immediately after closing, the station's programming was converted to a Spanish-language format. KHOT(FM) ACQUISITION. The Company entered into an asset purchase agreement with New Century Arizona, LLC and New Century Arizona License Partnership on January 27, 1999, to acquire the assets of KHOT(FM) serving the Phoenix market (the "Phoenix Acquisition") for $18.3 million. The Phoenix Acquisition closed on April 5, 1999. Immediately after closing, the station's programming was converted to a Spanish-language format. SALES OF CLASS A COMMON STOCK On November 24, 1999, the Company completed the issuance and sale of 3,051,290 shares of Class A Common Stock in an underwritten public offering for a total of $248.7 million in proceeds. The proceeds from the offering were used to repay borrowings under the Company's credit facility and will be used to finance future or pending acquisitions or other transactions, advances or investments and for general corporate purposes. On June 7, 1999, the Company completed the issuance and sale of 2,000,000 shares of Class A Common Stock in an underwritten public offering for a total of $119.9 million in proceeds. The proceeds from the offering were used to acquire the assets of radio stations. SPANISH-LANGUAGE RADIO INDUSTRY Due to differences in origin, Hispanics are not a homogeneous group. The music, culture, customs and Spanish dialects vary from one radio market to another. Consequently, the Company programs its stations in a manner responsive to the local preferences of the target demographic audience in each of the markets it serves. A well-researched mix of Spanish-language music and on-air programming at an individual station can attract a wide audience targeted by advertisers. Programming is continuously 5 monitored to maintain its quality and relevance to the target audience. Most music formats are primarily variations of Regional Mexican, Tropical, Tejano and Contemporary music styles. The local program director selects music from the various music styles that best reflect the music preferences of the local Hispanic audiences. A brief description of the Company's programming follows: REGIONAL MEXICAN. Regional Mexican consists of various types of music played in different regions of Mexico. Ranchera music, originating in Jalisco, Mexico, is a traditional folkloric music commonly referred to as Mariachi music. Mariachi music features acoustical instruments and is considered the music indigenous to Mexicans who have lived in the country towns. Nortena means northern, and is representative of Northern Mexico. Featuring an accordion, Nortena has a Polka sound with a distinct Mexican flavor. Banda is a regional music from the state of Sinaloa, Mexico and is popular in California. Banda resembles up-tempo marching band music with synthesizers. Regional Mexican also includes Cumbia music, which originates in Colombia. TROPICAL. The Tropical format primarily consists of Salsa, Merengue, and Cumbia music. Salsa is dance music combining Latin Caribbean rhythms with jazz. Salsa symbolizes music from Puerto Rico, Cuba, and the Dominican Republic and is popular with Hispanics living in New York, Miami and Chicago. Merengue music is up-tempo dance music originating in the Dominican Republic. TEJANO. Tejano music originated in Texas and is based on Mexican themes but is indigenous to Texas. It is a combination of contemporary rock, Ranchera, and country music. The lyrics are primarily sung in Spanish. The on-air talent speak in Spanish and English. CONTEMPORARY. The Contemporary format includes pop, Latin rock, and ballads. This format is similar to English adult contemporary and contemporary hit radio stations. FULL SERVICE. The Full Service format includes all the traditional radio services: music, news, sports, traffic reports, special information programs and weather. NEWS/TALK. News includes local, national, international reports and weather, business, traffic and sports. Talk includes commentary, analysis, discussion, interviews, call-ins and information shows. COMPANY'S STATIONS The following table sets forth information regarding the radio stations owned or programmed by the Company as of December 31, 1999:
RANKING OF MARKET BY PRIMARY HISPANIC DEMOGRAPHIC POPULATION MARKET(1) STATION STATION FORMAT(2) MARKET - ---------- -------------------------------- -------- ----------------- ----------- 1 Los Angeles KLVE(FM) Contemporary A 25-54 KSCA(FM) Regional Mexican A 25-54 KTNQ(AM) News/Talk A 25-54 2 New York WCAA(FM) Tropical A 25-54 WADO(AM) News/Talk A 25+ 3 Miami WAMR(FM) Contemporary A 25-54 WRTO(FM) Tropical A 18-34 WAQI(AM) News/Talk A 35+ WQBA(AM) News/Talk A 35+
6
RANKING OF MARKET BY PRIMARY HISPANIC DEMOGRAPHIC POPULATION MARKET(1) STATION STATION FORMAT(2) MARKET - ---------- -------------------------------- -------- ----------------- ----------- 4 San Francisco/San Jose KSOL(FM) Regional Mexican A 25-54 KZOL(FM) Regional Mexican A 25-54 5 Chicago WOJO(FM) Regional Mexican A 25-54 WIND(AM) Full Service A 35+ WLXX(AM) Tropical A 18-49 6 Houston KLTN(FM) Regional Mexican A 18-49 KOVE(FM) Contemporary A 25-54 KOVA(FM) Contemporary A 25-54 KLTO(FM) Contemporary A 25-54 KRTX(FM) Contemporary A 18-34 KLAT(AM) News/Talk A 25-54 KRTX(AM) Contemporary A 18-34 7 San Antonio KXTN(FM) Tejano A 25-54 KROM(FM) Regional Mexican A 25-54 KXTN(AM) Tejano A 25-54 KCOR(AM) Regional Mexican A 35+ 8 Dallas/Fort Worth KLNO(FM) Contemporary A 18-49 KHCK(FM) Tejano A 18-49 KDXT(FM) Contemporary A 18-49 KDXX(FM) Contemporary A 18-49 KDOS(FM) Contemporary A 18-49 KESS(AM) Full Service A 18+ KDXX(AM) Contemporary A 18-49 9 McAllen/Brownsville/Harlingen KGBT(FM) Regional Mexican A 25-54 KIWW(FM) Tejano A 25-54 KGBT(AM) Regional Mexican A 25-54 10 San Diego KLQV(FM) Contemporary A 25-54 KLNV(FM) Regional Mexican A 18-49 11 Phoenix KHOT(FM) Regional Mexican A 25-54 13 El Paso KBNA(FM) Regional Mexican A 25-54 KBNA(AM) Regional Mexican A 25-54 KAMA(AM) Tejano A 25-54 26 Las Vegas KISF(FM) Regional Mexican A 18-49 KLSQ(AM) Regional Mexican A 18-49
(1) Actual city of license may differ from the metropolitan market served. (2) See "--Spanish-Language Radio Industry." 7 The following table sets forth selected information with regard to Company owned radio stations:
DATE LICENSE BROADCAST STATION/MARKET ACQUIRED EXPIRATION DATE FREQUENCY - ------------------------------------------------- -------- --------------- --------- KLVE(FM), Los Angeles, CA 10/85 12/01/05 107.5 MHz KSCA(FM), Los Angeles, CA 09/99 12/01/05 101.9 MHz KTNQ(AM), Los Angeles, CA 10/85 12/01/05 1020 kHz WCAA(FM), New York, NY 05/98 06/01/98 (1) 105.9 MHz WADO(AM), New York, NY 08/94 06/01/06 1280 kHz WAMR(FM), Miami, FL 08/94 02/01/03 107.5 MHz WRTO(FM), Miami, FL 10/89 02/01/03 98.3 MHz WAQI(AM), Miami, FL 10/89 02/01/03 710 kHz WQBA(AM), Miami, FL 08/94 02/01/03 1140 kHz KSOL(FM), San Francisco/San Jose, CA 02/97 12/01/05 98.9 MHz KZOL(FM), San Francisco/San Jose, CA 02/97 12/01/05 99.1 MHz WOJO(FM), Chicago, IL 02/97 12/01/04 105.1 MHz WIND(AM), Chicago, IL 02/97 12/01/04 560 kHz WLXX(AM), Chicago, IL 07/95 12/01/04 1200 kHz KLTN(FM), Houston, TX 05/98 08/01/05 102.9 MHz KOVE(FM), Houston, TX 02/97 08/01/05 93.3 MHz KOVA(FM), Houston, TX 02/97 08/01/05 104.9 MHz KLTO(FM), Houston, TX 02/97 08/01/05 104.9 MHz KRTX(FM), Houston, TX 02/97 08/01/05 100.7 MHz KLAT(AM), Houston, TX 02/97 08/01/05 1010 kHz KRTX(AM), Houston, TX 02/97 08/01/05 980 kHz KXTN(FM), San Antonio, TX 02/97 08/01/05 107.5 MHz KROM(FM), San Antonio, TX 02/97 08/01/05 92.9 MHz KXTN(AM), San Antonio, TX 02/97 08/01/05 1310 kHz KCOR(AM), San Antonio, TX 02/97 08/01/05 1350 kHz KLNO(FM), Dallas/Ft. Worth, TX 09/99 08/01/05 94.1 MHz KHCK(FM), Dallas/Ft. Worth, TX 07/95 08/01/05 99.1 MHz KDXT(FM), Dallas/Ft. Worth, TX 06/95 08/01/05 106.7 MHz KDXX(FM), Dallas/Ft. Worth, TX 04/95 08/01/05 107.9 MHz KDOS(FM), Dallas/Ft. Worth, TX 08/94 (2) 107.9 MHz KESS(AM), Dallas/Ft. Worth, TX 08/94 08/01/05 1270 kHz KDXX(AM), Dallas/Ft. Worth, TX 12/94 08/01/05 1480 kHz KGBT(FM), McAllen/Brownsville/Harlingen, TX 02/97 08/01/05 98.5 MHz KIWW(FM), McAllen/Brownsville/Harlingen, TX 02/97 08/01/05 96.1 MHz KGBT(AM), McAllen/Brownsville/Harlingen, TX 02/97 08/01/05 1530 kHz KLQV(FM), San Diego, CA 08/98 12/01/05 102.9 MHz KLNV(FM), San Diego, CA 08/98 12/01/05 106.5 MHz KHOT(FM), Phoenix, AZ 04/99 12/01/05 105.9 MHz KBNA(FM), El Paso, TX 02/97 08/01/05 97.5 MHz KBNA(AM), El Paso, TX 02/97 08/01/05 920 kHz
8
DATE LICENSE BROADCAST STATION/MARKET ACQUIRED EXPIRATION DATE FREQUENCY - ------------------------------------------------- -------- --------------- --------- KAMA(AM), El Paso, TX 02/97 08/01/05 750 kHz KISF(FM), Las Vegas, NV 04/99 10/01/05 103.5 MHz KLSQ(AM), Las Vegas, NV 08/95 10/01/97 (1) 870 kHz
(1) An application for license renewal is currently pending with the Federal Communications Commission ("FCC"). Regulations permit continuing operation of the station during the period the renewal application is pending. (2) KDOS(FM) has been constructed and a license application (currently pending) was timely filed with the FCC on April 19, 1999. Statistical information contained herein regarding the radio industry, population, consumer spending and advertising expenditures are taken from the 1997 U.S. Census, Strategy Research Corporation--2000 U.S. HISPANIC MARKET STUDY, and Hispanic Business Magazine (December 1994 and 2000). The Company's station rankings were based upon the Arbitron Adults 18-34 and 25-54 category 1999 Fall Book. COMPETITION Radio broadcasting is a highly competitive business. The Company's radio stations compete for audiences and advertising revenues with other radio stations of all formats, as well as with other media, such as newspapers, magazines, television, cable television, outdoor advertising and direct mail, within their respective markets. Audience ratings and market shares are subject to change and any adverse change in a particular market would have a material adverse effect on the revenues of stations located in that market. Future operations are further subject to many variables which could have an adverse effect upon the Company's financial performance. These variables include economic conditions, both general and relative to the broadcasting industry; shifts in population and other demographics; the level of competition for advertising dollars with other radio stations and other entertainment and communications media; fluctuations in operating costs; technological changes and innovations; changes in labor conditions; and changes in governmental regulations and policies and actions of federal regulatory bodies, including the FCC, the Federal Trade Commission ("FTC"), and the Antitrust Division of the Department of Justice (the "Antitrust Division"). Although the Company believes that each of its stations does or will be able to compete effectively in its respective market, there can be no assurance that any such station will be able to maintain or increase its current audience ratings and advertising revenues. Radio stations can quickly change formats. Any radio station could shift its format to duplicate the format of any of the Company's stations. If a station converted its programming to a format similar to that of a station owned by the Company, the ratings and broadcast cash flow of the Company's station could be adversely affected. REGULATION OF THE COMPANY'S BUSINESS EXISTING REGULATION AND LEGISLATION. Radio broadcasting is subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the "Communications Act"). The Communications Act prohibits the operation of a radio broadcasting station except under a license issued by the FCC and empowers the FCC, among other things, to issue, renew, revoke and modify broadcasting licenses; assign frequency bands; determine stations' frequencies, locations and power; regulate the equipment used by stations; adopt other regulations to carry out the provisions of the Communications Act; impose penalties for violation of such regulations; and impose fees for processing applications and other administrative functions. The Communications Act prohibits the assignment of a license or the transfer of control of a licensee without prior approval of the FCC. 9 The Telecommunications Act of 1996 (the "1996 Act") represents the most comprehensive overhaul of the country's telecommunications laws in more than 60 years. The 1996 Act significantly changed both the broadcast ownership rules and the process for renewal of broadcast station licenses. The 1996 Act also relaxed local radio ownership restrictions. The FCC has already implemented some of these changes through Commission Orders. The 1996 Act established a "two-step" renewal process that limits the FCC's discretion to consider applications filed in competition with an incumbent's renewal application. Additionally, the 1996 Act substantially liberalized the broadcast ownership rules, eliminating the national radio limits. This new regulatory flexibility has engendered aggressive local, regional, and/or national acquisition campaigns. Removal of previous station ownership limitations on leading incumbents (i.e., existing networks and major station groups) has increased sharply the competition for, and the prices of, attractive stations. MULTIPLE OWNERSHIP RESTRICTIONS. The FCC has promulgated rules that, among other things, limit the ability of individuals and entities to own or have an official position or ownership interest above a certain level (an "attributable" interest, as defined more fully below) in broadcast stations, as well as other specified mass media entities. Prior to the passage of the 1996 Act, these rules included limits on the number of radio stations that could be owned on both a national and local basis. The 1996 Act substantially relaxed the radio ownership limitations. The FCC began its implementation of the 1996 Act with several orders issued on March 8, 1996. The 1996 Act and the FCC's subsequently issued rule changes eliminated the national ownership restriction, allowing a single entity to own nationally any number of AM or FM broadcast stations. The 1996 Act and the FCC's new rules also greatly eased local radio ownership restrictions. As with the old rules, the maximum number of radio stations in which a person or entity is allowed to have an attributable interest varies depending on the number of radio stations within a defined market. In markets with more than 45 stations, one company may own, operate or control eight stations, with no more than five in either service (AM or FM). In markets of 30-44 stations, one company may own seven stations, with no more than four in either service; in markets with 15- 29 stations, one entity may own six stations, with no more than four in either service. In markets with 14 commercial stations or less, one company may own up to five stations or 50% of all of the stations, whichever is less, with no more than three in either service. It should be noted, however, that the Department of Justice has precluded certain entities from acquiring the maximum number of radio stations allowed in a market under the 1996 Act because of concerns that antitrust laws would be violated. Thus, it is possible that the Company would, in certain instances, be unable to acquire the maximum number of stations allowed in a market under the 1996 Act. In 1992, the FCC placed limitations on time brokerage (local marketing) agreements ("LMA") through which the licensee of one radio station provides the programming for another licensee's station in the same market. Stations operating in the same service (e.g., where both stations are AM) and in the same market are prohibited from simulcasting more than 25% of their programming. Moreover, in determining the number of stations that a single entity may control, an entity programming a station pursuant to a LMA is required, under certain circumstances, to count that station toward its maximum even though it does not own the station. A number of cross-ownership rules pertain to licensees of television and radio stations. The federal communications laws limit the number of radio stations a company may own or control in markets where the company also owns or controls one or more television stations. Following recent revisions to these rules, the FCC currently permits a company to own or control more than one radio station in a market in which the company also owns or controls one or more television stations, depending on the number of independent voices existing in the market. The FCC has initiated a proceeding and sought public comment on whether it should relax its policy of granting waivers of the radio/newspaper cross-ownership restriction. 10 Expansion of the Company's broadcast operations in particular areas and nationwide will continue to be subject to the FCC's ownership rules and any further changes the FCC or Congress may adopt. Significantly, the 1996 Act requires the FCC to review its remaining ownership rules biennially -- as part of its regulatory reform obligations -- to determine whether its various rules are still necessary. In August 1999, the FCC announced the results of its first biennial review of its broadcast ownership rules (see discussion below). The Company cannot predict the impact of future announcements in the biennial review process or any other agency or legislative initiatives upon the FCC's broadcast rules. Under the FCC's ownership rules, a direct or indirect purchaser of certain types of securities of the Company could violate FCC regulations if that purchaser owned or acquired an "attributable" or "meaningful" interest in other media properties in the same areas as stations owned by the Company or in a manner otherwise prohibited by the FCC. All officers and directors of a licensee, as well as general partners, limited partners who are not properly "insulated" from management activities, and stockholders who own five percent or more of the outstanding voting stock of a licensee (either directly or indirectly), are generally deemed to have an attributable interest in the license. Certain institutional investors who exert no control or influence over a licensee may own up to twenty percent of such outstanding voting stock without the interest being considered "attributable". In addition to the foregoing limitations, under the FCC's new "equity/debt plus" standard, if an investor's interest in a licensee corporation exceeds thirty-three percent of the aggregated debt and equity of the company (i.e., the "total asset value" of the company), the investor's interest is considered attributable if the investor is also either a major program supplier to the licensee or a same-market media entity. Insulated limited partnership interests (as to which the licensee certifies that the limited partners are not "materially involved" in the management and operation of the subject media property), and voting stock held by minority stockholders where there is a single majority stockholder, are generally not considered attributable interests. The FCC has eliminated its "cross-interest" policy which formerly precluded an individual or entity from having a "meaningful" (even though not attributable) interest in one media property and an attributable interest in certain other media properties in the same area. LICENSE GRANT AND RENEWAL. Prior to the passage of the 1996 Act, radio broadcasting licenses generally were granted or renewed for a period of seven years upon a finding by the FCC that the "public interest, convenience, and necessity" had been served thereby. At the time an application was made for renewal of a radio license, parties in interest could file petitions to deny the application, and such parties, including members of the public, could comment upon the service the station had provided during the preceding license term. In addition, prior to passage of the 1996 Act, any person was permitted to file a competing application for authority to operate on the station's channel and replace the incumbent licensee. Renewal applications were granted without a hearing if there were no competing applications or if issues raised by petitioners to deny such applications were not serious enough to cause the FCC to order a hearing. If competing applications were filed, a full comparative hearing was required. Under the 1996 Act, the statutory restriction on the length of broadcast licenses has been amended to allow the FCC to grant broadcast licenses for terms of up to eight years and the FCC has implemented the eight year license term provision for radio stations. The 1996 Act also requires renewal of a broadcast license if the FCC finds that (1) the station has served the public interest, convenience, and necessity; (2) there have been no serious violations of either the Communications Act or the FCC's rules and regulations by the licensee; and (3) there have been no other serious violations which taken together constitute a pattern of abuse. In making its determination, the FCC may still consider petitions to deny but cannot consider whether the public interest would be better served by a person other than the renewal applicant. Instead, under the 1996 Act, competing applications for the same frequency may be accepted only after the FCC has denied an incumbent's application for renewal of license. 11 Although in the vast majority of cases broadcast licenses are granted by the FCC even when petitions to deny are filed against them, there can be no assurance that any of the Company's stations' licenses will be renewed. ALIEN OWNERSHIP RESTRICTIONS. The Communications Act restricts the ability of foreign entities or individuals to own or hold certain interests in broadcast licenses. Foreign governments, representatives of foreign governments, non-U.S. citizens, representatives of non-U.S. citizens, and corporations or partnerships organized under the laws of a foreign nation are barred from holding broadcast licenses. Non-U.S. citizens, collectively, may directly or indirectly own or vote up to twenty percent of the capital stock of a licensee. In addition, a broadcast license may not be granted to or held by any corporation that is controlled, directly or indirectly, by any other corporation more than one-fourth of whose capital stock is owned or voted by non-U.S. citizens or their representatives, by foreign governments or their representatives, or by non-U.S. corporations, if the FCC finds that the public interest will be served by the refusal or revocation of such license. The FCC has interpreted this provision of the Communications Act to require an affirmative public interest finding before a broadcast license may be granted to or held by any such corporation, and the FCC has made such an affirmative finding only in limited circumstances. The Company, which serves as a holding company for subsidiaries that serve as licensees for the stations, therefore may be restricted from having more than one-fourth of its stock owned or voted directly or indirectly by non-U.S. citizens, foreign governments, representatives of non-U.S. citizens or foreign governments, or foreign corporations. OTHER REGULATIONS AFFECTING RADIO BROADCASTING STATIONS. The FCC has significantly reduced its past regulation of broadcast stations, including elimination of formal ascertainment requirements and guidelines concerning amounts of certain types of programming and commercial matter that may be broadcast. In 1990, the U.S. Supreme Court refused to review a lower court decision that upheld the FCC's 1987 action invalidating most aspects of the Fairness Doctrine, which had required broadcasters to present contrasting views on controversial issues of public importance. The FCC has, however, continued to regulate other aspects of fairness obligations in connection with certain types of broadcasts. In addition, there are FCC rules and policies, and rules and policies of other federal agencies, that regulate matters such as political advertising practices, equal employment opportunities, application procedures and other areas affecting the business or operations of broadcast stations. ANTITRUST MATTERS. An important element of the Company's growth strategy involves the acquisition of additional radio stations, many of which are likely to require preacquisition antitrust review by the FTC and the Antitrust Division. Following passage of the 1996 Act, the Antitrust Division has become more aggressive in reviewing proposed acquisitions of radio stations and radio station networks, particularly in instances where the proposed acquiror already owns one or more radio station properties in a particular market and seeks to acquire another radio station in the same market. The Antitrust Division has, in some cases, obtained consent decrees requiring radio station divestitures in a particular market based on allegations that acquisitions would lead to unacceptable concentration levels. There can be no assurance that the Antitrust Division or the FTC will not seek to bar the Company from acquiring additional radio stations in a market where the Company already has a significant position. The FCC has been more aggressive in independently examining issues of market concentration when considering radio station acquisitions. The FCC has delayed its approval of several pending radio station purchases by various parties because of market concentration concerns. Moreover, in recent months the FCC has followed an informal policy of giving specific public notice of its intention to conduct additional ownership concentration analysis and soliciting public comment on the issue of concentration and its effect on competition and diversity with respect to certain applications for consent to radio station acquisitions. 12 ENVIRONMENTAL MATTERS. As the owner, lessee or operator of various real properties and facilities, the Company is subject to various federal, state and local environmental laws and regulations. Historically, compliance with such laws and regulations has not had a material adverse effect on the Company's business. There can be no assurance, however, that compliance with existing or new environmental laws or regulations will not require the Company to make significant expenditures in the future. RECENT DEVELOPMENTS, PROPOSED LEGISLATION AND REGULATION. The FCC is considering ways to introduce new technologies to the radio broadcasting industry, including terrestrial delivery of digital audio broadcasting on both the AM and FM bands. In 1997, the FCC granted two licenses for national, satellite-delivered digital audio broadcasting services. These services will be capable of delivering multiple, high-quality channels of audio. The Company is unable to predict the effect any such new technology will have on the Company's financial condition or results of operations. In addition, cable television operators and direct satellite broadcast television companies market service commonly referred to as "cable radio" which provides their subscribers with several high-quality channels of music, news and other information. Technical considerations currently limit this technology to fixed locations. The FCC presently is seeking comment on its policies designed to increase minority ownership of mass media facilities. Congress, however, has enacted legislation that eliminated the minority tax certificate program of the FCC, which gave favorable tax treatment to entities selling broadcast stations to entities controlled by an ethnic minority. In addition, a Supreme Court decision has cast into doubt the continued validity of other FCC programs designed to increase minority ownership of mass media facilities. Congress and the FCC currently have under consideration, and may in the future adopt, new laws, regulations and policies regarding a wide variety of matters that could affect, directly or indirectly, the operation and ownership of the Company's broadcast properties. For example, the FCC has recently adopted new rules which, with limited exceptions, require the holder of an FCC construction permit to complete construction of new or modified facilities within three (3) years of grant. In addition to the changes and proposed changes noted above, such matters include, for example, the license renewal process, spectrum use fees, political advertising rates, potential restrictions on the advertising of certain products (liquor, beer and wine, for example) and the rules and policies to be applied in enforcing the FCC's equal employment opportunity regulations. Other matters that could affect the Company's broadcast properties include technological innovations and developments generally affecting competition in the mass communications industry. The foregoing does not purport to be a complete summary of all the provisions of the Communications Act, or the 1996 Act, nor of the regulations and policies of the FCC thereunder. The 1996 Act also covers satellite and terrestrial delivery of digital audio radio service, and direct broadcast satellite systems. Proposals for additional or revised regulations and requirements are pending before and are being considered by Congress and federal regulatory agencies from time to time. Also, various of the foregoing matters are now, or may become, the subject of court litigation, and the Company cannot predict the outcome of any such litigation or the impact on its broadcast business. CONCENTRATION OF CASH FLOW FROM LOS ANGELES STATIONS. Broadcast cash flow generated by the Company's Los Angeles stations accounted for approximately 43.4% of the Company's broadcast cash flow for the year ended December 31, 1999. In addition, in January 2000 the Company acquired two additional radio stations in Los Angeles. Increased competition for advertising dollars with other radio stations and communications media in the Los Angeles metropolitan area, both generally and relative to the broadcasting industry, increased competition from a new format competitor and other competitive and economic factors could cause a decline in revenue generated by the 13 Company's Los Angeles stations. A significant decline in the revenue of the Los Angeles stations could have a material adverse effect on the Company's overall results of operations and broadcast cash flow. CONTROL BY CERTAIN STOCKHOLDERS CONTROL BY THE TICHENOR FAMILY. As of March 13, 2000, McHenry T. Tichenor, Jr., the Company's Chairman, President and Chief Executive Officer, and certain members of his family held voting control over approximately 17.1% of the shares of the Company's Class A Common Stock. Since these shares are subject to a voting agreement, the Tichenor family can exert significant influence over the election of the Company's board of directors and other management decisions. Such ownership and control by the Tichenor family could have the effect of delaying or preventing a change in control of the Company, thereby possibly having the effect of depriving stockholders of the opportunity to receive a premium for their shares. Such ownership and control could also have the effect of making the Company less attractive to a potential acquiror and could result in holders of Class A Common Stock receiving less consideration upon a sale of their shares than might otherwise be available in the event of a takeover attempt. RELATIONSHIP BETWEEN THE COMPANY AND CLEAR CHANNEL. As of March 13, 2000, Clear Channel owned no shares of Class A Common Stock and thus is not entitled to vote in the election of the Company's directors. However, Clear Channel does own all of the outstanding shares of the Company's Class B Common Stock, which accounts for approximately a 26.0% interest in the Common Stock of the Company. As long as Clear Channel owns at least 20.0% of the Company's Common Stock, Clear Channel will have a class vote on certain matters, including the sale of all or substantially all of the assets of the Company, any merger or consolidation involving the Company where the stockholders of the Company immediately prior to the transaction would not own at least 50.0% of the capital stock of the surviving entity, any reclassification, capitalization, dissolution, liquidation or winding up of the Company, the issuance of any shares of Preferred Stock by the Company, the amendment of the Company's Restated Certificate of Incorporation in a manner that adversely affects the rights of the holders of Class B Common Stock, the declaration or payment of any non-cash dividends on the Company's Common Stock, or any amendment to the Company's Certificate of Incorporation concerning the Company's capital stock. Furthermore, shares of Class B Common Stock are convertible into shares of Class A Common Stock, at the holder's option, subject to any necessary governmental consents, including the consent of the FCC. Because of the FCC's multiple ownership rules, which limit the number of radio stations that a company may own or have an attributable interest in, in a single market, Clear Channel may not presently convert its shares of Class B Common Stock into shares of Class A Common Stock if such conversion would create an attributable interest without first obtaining the consent of the FCC. The provisions of the Class B Common Stock could have the effect of delaying or preventing a change in control of the Company, thereby possibly having the effect of depriving stockholders of the opportunity to receive a premium for their shares. Such provisions could also have the effect of making the Company less attractive to a potential acquirer and could result in holders of Class A Common Stock receiving less consideration upon a sale of their shares than might otherwise be available in the event of a takeover attempt. Clear Channel owns a significant percentage of the Company's Common Stock. Any direct or indirect sales of the Company's stock by Clear Channel could have a material adverse effect on the Company's stock price and could impair the Company's ability to raise money in the equity markets. The nature of the respective businesses of the Company and Clear Channel gives rise to potential conflicts of interest between the two companies. The Company and Clear Channel are each engaged in the radio broadcasting business in certain markets, and as a result, they are competing with each other for advertising revenues. As of December 31, 1999, Clear Channel owned, programmed or sold airtime for 507 radio stations in 123 domestic markets, as well as radio stations in a number of foreign countries. Clear 14 Channel also owned or programmed 24 television stations and was one of the world's largest outdoor advertising companies based on its total inventory of advertising display faces. Clear Channel's television and outdoor advertising operations may also be deemed to compete with the Company's business. In addition, conflicts could arise with respect to transactions involving the purchase or sale of radio broadcasting companies, particularly Spanish-language radio broadcasting companies, the issuance of additional equity securities, or the payment of dividends by the Company. For instance, Clear Channel currently owns a 40% equity interest in Grupo Acir Communicaciones, S.A. de C.V., one of the largest radio broadcasters in Mexico. In addition, following its pending merger with AMFM Inc., as described below, Clear Channel will own a non-voting equity interest in Z-Spanish Media Corporation, the fourth largest Spanish-language radio operator in the United States. Except as discussed below in connection with Clear Channel's pending merger with AMFM, Clear Channel has advised the Company that it does not currently intend to directly engage in the Spanish-language radio broadcasting business in the United States, other than through its ownership of shares in the Company. However, circumstances could arise that would cause Clear Channel to directly or indirectly engage in the domestic Spanish-language radio broadcasting business. For example, opportunities could arise which require greater financial resources than those available to the Company or which are located in areas in which the Company does not intend to operate. Thus, although Clear Channel has indicated that it has no current intention to directly engage in the domestic Spanish-language broadcasting business, the Company cannot guarantee that Clear Channel will not do so in the future. In addition, Clear Channel may from time to time acquire domestic Spanish-language radio broadcasting companies or an interest in such companies, individually or as part of a larger group, and thereafter directly or indirectly engage in the domestic Spanish-language radio broadcasting business. For instance, Clear Channel has entered into an agreement to engage in a merger with AMFM, after which AMFM would be a wholly-owned subsidiary of Clear Channel. AMFM currently owns a non-voting equity position in Z-Spanish, and, thus, Clear Channel will indirectly own such equity interest in Z-Spanish following the AMFM merger. Also, AMFM owns and operates stations which broadcast in a Spanish-language format. Such acquisitions and equity positions could cause Clear Channel to directly or indirectly compete with the Company's business in the future, which could adversely affect the Company. In addition, Clear Channel may from time to time make international acquisitions of or investments in companies engaged in the Spanish-language radio broadcasting business outside the United States and the Company and Clear Channel may compete for such acquisition or investment opportunities. To the extent the Company enters new lines of business, it may be deemed to compete directly or indirectly with Clear Channel, and the Company and Clear Channel may compete in the future with respect to acquisitions and investment opportunities in these areas. RISK POSED BY ACQUISITION STRATEGY The Company intends to grow through the acquisition of radio stations and other assets it believes will complement its existing portfolio. The Company's acquisition strategy involves numerous risks, including the risk that certain acquisitions may prove unprofitable and fail to generate anticipated cash flows; the risk that successful management of a portfolio of radio broadcasting properties may require the Company to recruit additional senior management and expand corporate infrastructure; the risk that the Company may encounter difficulties in the integration of operations and systems; the risk that management's attention may be diverted from other business concerns; and the risk that the Company may lose key employees of acquired companies or stations. The Company continues to explore international opportunities. If the Company makes one or more international acquisitions, it will face new risks that it does not face in the United States, such as foreign currency risks, foreign ownership restrictions, foreign taxation, restrictions on withdrawal of foreign investments and earnings, possible expropriation and other risks. The Company will face stiff competition from other companies for acquisition opportunities. If the prices sought by sellers of existing radio stations continue to rise, the Company may find fewer acceptable 15 acquisition opportunities. In addition, the purchase price of possible acquisitions could require additional debt or equity financing. The Company can give no assurance that either it will obtain the needed financing or that it will obtain such financing on attractive terms. Additional indebtedness could increase the Company's leverage and make it more vulnerable to economic downturns and may limit the Company's ability to withstand competitive pressures. Additional equity financing or the issuance of the Company's shares in connection with an acquisition would dilute the ownership interest of the Company's stockholders. The Company may not have sufficient capital resources to complete acquisitions. Part of the Company's strategy is to acquire radio stations with an English-language format and convert these stations to a Spanish-language format. This conversion process is currently under way in Los Angeles, New York, San Diego, Dallas, Phoenix and Las Vegas. In addition, the Company plans to convert two of the stations acquired from Clear Channel and AMFM in Austin and Denver into Spanish-language formats. This conversion strategy requires a heavy initial investment of both financial and management resources. Start-up stations typically incur losses for a period of time after a format change because of the time required to build up ratings and station loyalty. The Company can give no assurance that this strategy will be successful in any given market, notwithstanding that the Company may incur substantial costs and losses in implementing this part of its strategy. FORWARD-LOOKING STATEMENTS Certain statements contained herein are not based upon historical facts, but are forward-looking statements based upon numerous assumptions made as of the date hereof. When used in the preceding and following discussions, the words "believes," "intends," "expects," "anticipates" and similar expressions are intended to identify such forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Such risks and uncertainties include, but are not limited to, industrywide market factors and regulatory developments affecting the Company's operations, acquisitions and dispositions of broadcast properties, the financial performance of start-up stations, and efforts by the Company's management to integrate its operating philosophies and practices at the station level. The Company disclaims any obligation to update the forward-looking statements contained herein. INDUSTRY SEGMENTS The Company considers radio broadcasting to be its only operating segment. EMPLOYEES As of February 25, 2000, the Company employed 828 persons on a full-time basis, including corporate employees and 16 employees (at WCAA(FM) and WADO(AM), New York) who are subject to two collective bargaining agreements. The Company considers its employee relations to be good. ITEM 2. PROPERTIES The Company's corporate headquarters is in Dallas, Texas. The Company has leased approximately 11,000 square feet at 3102 Oak Lawn Avenue in Dallas, Texas. The initial term of this lease expires in 2013, and the Company has one option to extend the lease for one additional five-year term. The types of properties required to support each of the Company's radio stations listed in Item 1 above includes offices, studios, transmitter sites and antenna sites. A radio station's studios are generally housed with its offices in downtown or business districts. A radio station's transmitter sites and antenna sites generally are located in a manner that provides maximum market coverage subject to the station's FCC license and FCC rules and regulations. 16 The studios and offices of the Company's radio stations are located in leased or owned facilities. These leases generally have expiration dates that range from three to fifteen years. The Company either owns or leases its transmitter and antenna sites. These leases generally have expiration dates that range from one to seventeen years. The Company does not anticipate any difficulties in renewing those leases that expire within the next several years or in leasing other space, if required. A substantial amount of the Company's broadcast cash flow was generated by the Company's Los Angeles stations during 1999. Accordingly, the offices, studios, transmitter sites and antenna sites used in the operation of the Company's Los Angeles stations may be material to the Company's overall operations. As noted in Item 1 above, as of December 31, 1999, the Company owns or programs 43 radio stations in 13 markets throughout the United States. Therefore, except as set forth above, no one property is material to the Company's overall operations. The Company believes that its properties are in good condition and suitable for its operations. The Company owns substantially all of the equipment used in its radio broadcasting business. ITEM 3. LEGAL PROCEEDINGS In the ordinary course of business, the Company becomes involved in certain legal claims and litigation. In the opinion of management, based upon consultations with legal counsel, the disposition of such litigation pending against the Company will not have a materially adverse effect on its consolidated financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 17 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF CLASS A COMMON STOCK The Class A Common Stock is traded on the Nasdaq National Market under the symbol "HBCCA." The following table sets forth for each of the periods presented below, the high and low closing sale prices per share as reported by the Nasdaq National Market.
HIGH LOW ---------------------------- YEAR ENDED DECEMBER 31, 1998 First Quarter ............................... $ 50.88 $ 40.38 Second Quarter .............................. 45.50 34.88 Third Quarter ............................... 42.81 30.00 Fourth Quarter .............................. 49.25 31.25 YEAR ENDED DECEMBER 31, 1999 First Quarter ............................... $ 48.88 $ 41.25 Second Quarter .............................. 75.88 43.25 Third Quarter ............................... 87.47 66.50 Fourth Quarter .............................. 97.50 76.94
As of December 31, 1999, there were approximately 140 holders of the Class A Common Stock. This figure does not include an estimate of the indeterminate number of beneficial holders whose shares may be held of record by brokerage firms and clearing agencies. DIVIDEND POLICY The Company has never paid a cash dividend on its Common Stock and does not anticipate paying cash dividends in the foreseeable future. The Company intends to retain any earnings for use in the growth of its business. The Company currently is restricted from paying any cash dividends on its capital stock under its credit agreement. 18 ITEM 6. SELECTED FINANCIAL DATA The following table presents selected consolidated financial data for Hispanic Broadcasting Corporation and its subsidiaries for the years ended December 31, 1999, 1998 and 1997, the three months ended December 31, 1996, and the years ended September 30, 1996 and 1995 (in thousands, except per share data):
Three Months Ended Year Ended December 31, December 31, Year Ended September 30, -------------------------------------- ------------ ------------------------ 1999 1998 1997 1996 1996 1995 ---------- --------- --------- ------------ ------------------------ STATEMENT OF OPERATIONS DATA: Net revenues $ 197,920 $ 164,122 $ 136,584 $ 18,309 $ 71,732 $ 64,160 Operating expenses 106,288 95,784 82,065 11,207 48,896 43,643 Depreciation and amortization 28,492 21,149 14,928 1,747 5,140 3,344 --------- --------- --------- --------- --------- --------- Operating income before corporate expenses 63,140 47,189 39,591 5,355 17,696 17,173 Corporate expenses 6,982 5,451 4,579 368 5,072 4,720 --------- --------- --------- --------- --------- --------- Operating income 56,158 41,738 35,012 4,987 12,624 12,453 --------- --------- --------- --------- --------- --------- Other income (expense): Interest income (expense), net 1,831 2,634 (3,541) (2,841) (11,034) (6,389) Restructuring charges(b) - - - - (29,011) - Other, net - 252 (82) 18 (1,671) (428) --------- --------- --------- --------- --------- --------- 1,831 2,886 (3,623) (2,823) (41,716) (6,817) --------- --------- --------- --------- --------- --------- Income (loss) before minority interest and income tax 57,989 44,624 31,389 2,164 (29,092) 5,636 Minority interest(a) - - - - - 1,167 Income tax 23,813 17,740 12,617 100 65 150 --------- --------- --------- --------- --------- --------- Income (loss) from continuing operations 34,176 26,884 18,772 2,064 (29,157) 4,319 Loss on discontinued operations of CRC(b) - - - - 9,988 626 --------- --------- --------- --------- --------- --------- Income (loss) before extraordinary item 34,176 26,884 18,772 2,064 (39,145) 3,693 Extraordinary item - loss on retirement of debt - - - - 7,461 - --------- --------- --------- --------- --------- --------- Net income (loss) $ 34,176 $ 26,884 $ 18,772 $ 2,064 $ (46,606) $ 3,693 ========= ========= ========= ========= ========= ========= Net income (loss) per common share(c): Basic: Continuing operations $ 0.67 $ 0.55 $ 0.45 $ 0.09 $ (1.41) $ 0.21 Discontinued operations - - - - (0.49) (0.03) Extraordinary loss - - - - (0.36) - --------- --------- --------- --------- --------- --------- Net income (loss) $ 0.67 $ 0.55 $ 0.45 $ 0.09 $ (2.26) $ 0.18 ========= ========= ========= ========= ========= ========= Diluted: Continuing operations $ 0.66 $ 0.54 $ 0.45 $ 0.09 $ (1.41) $ 0.20 Discontinued operations - - - - (0.49) (0.03) Extraordinary loss - - - - (0.36) - --------- --------- --------- --------- --------- --------- Net income (loss) $ 0.66 $ 0.54 $ 0.45 $ 0.09 $ (2.26) $ 0.17 ========= ========= ========= ========= ========= ========= Weighted average common shares outstanding: Basic 50,783 49,021 41,671 23,095 20,590 20,021 Diluted 51,464 49,348 41,792 23,095 20,590 21,611 STATEMENT OF CASH FLOW DATA: Net cash provided by (used in) operating activities $ 61,641 $ 56,985 $ 43,792 $ 2,607 $ (20,099) $ 6,280 Net cash used in investing activities (226,133) (246,326) (23,019) (798) (28,480) (42,013) Net cash provided by (used in) financing activities 369,335 193,081 (19,008) (2,153) 48,306 30,918 OTHER OPERATING DATA(d): Broadcast cash flow $ 91,632 $ 68,338 $ 54,519 $ 7,102 $ 22,836 $ 20,517 EBITDA 84,650 62,887 49,940 6,734 17,764 15,797
19
Three Months Ended Year Ended December 31, December 31, Year Ended September 30, -------------------------------------- ------------ ------------------------ 1999 1998 1997 1996 1996 1995 ---------- --------- --------- ------------ ------------------------ BALANCE SHEET DATA (AT END OF PERIOD): Working capital $ 231,137 $ 17,168 $ 10,970 $ 8,429 $ 7,168 $ 14,967 Net intangible assets 848,351 646,201 423,530 120,592 121,742 109,253 Total assets 1,157,138 746,689 512,249 163,725 165,751 151,637 Long-term debt, less current portion 1,448 1,547 14,122 135,504 137,659 97,516 Stockholders' equity 1,026,253 622,621 389,960 14,166 12,101 43,581
(a) Effective August 20, 1994, we began accounting for our 49.0% interest in Viva Media on a consolidated basis. Accordingly, Viva Media's results of operations are included in the consolidated financial statements commencing August 20, 1994. We acquired the remaining 51.0% of Viva Media on September 7, 1995. Prior to August 20, 1994, the results of operations of Viva Media were accounted for using the equity method of accounting. (b) On August 5, 1996, Clear Channel Communications, Inc. acquired control of the Company. In connection with the change in control, the Company incurred certain restructuring charges. Also, effective August 5, 1996, the Company's Board of Directors approved a plan to discontinue the operations of the radio network Cadena Radio Centro ("CRC"). (c) All common share and per-common-share amounts have been adjusted retroactively for a two-for-one common stock split effective December 1, 1997. (d) Operating income excluding corporate expenses, depreciation and amortization, commonly referred to as "broadcast cash flow," is widely used in the broadcast industry as a measure of a broadcasting company's operating performance. Another measure of operating performance is EBITDA. EBITDA consists of operating income excluding depreciation and amortization. Broadcast cash flow and EBITDA are not calculated in accordance with generally accepted accounting principles. These measures should not be considered in isolation or as substitutes for operating income, cash flows from operating activities or any other measure for determining our operating performance or liquidity that is calculated in accordance with generally accepted accounting principles. Further, such amounts may not be consistent with similarly titled measures presented by other companies. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the consolidated results of operations and cash flows of the Company for the years ended December 31, 1999, 1998 and 1997 and consolidated financial condition as of December 31, 1999 and 1998 should be read in conjunction with the consolidated financial statements of the Company and the related notes included elsewhere in this report. GENERAL The performance of a radio station group is customarily measured by its ability to generate broadcast cash flow. The two components of broadcast cash flow are net revenues (gross revenues net of agency commissions) and operating expenses (excluding depreciation, amortization and corporate general and administrative expense). The primary source of revenues is the sale of broadcasting time for advertising. The most significant operating expenses for purposes of the computation of broadcast cash flow are employee salaries and commissions, programming expenses, and advertising and promotion expenses. Management of the Company strives to control these expenses by working closely with local station management. The Company's revenues vary throughout the year. As is typical in the radio broadcasting industry, the first calendar quarter generally produces the lowest revenues. The second and third quarters generally produce the highest revenues. Another measure of operating performance is EBITDA. EBITDA consists of operating income or loss excluding depreciation and amortization. Broadcast cash flow and EBITDA are not calculated in accordance with generally accepted accounting principles. These measures should not be considered in isolation or as substitutes for operating income, cash flows from operating activities or any other measure for determining operating performance or liquidity that is calculated in accordance with generally accepted accounting principles. Broadcast cash flow and EBITDA do not take into account the Company's debt service requirements and other commitments and, accordingly, broadcast cash flow and EBITDA are not necessarily indicative of amounts that may be available for dividends, reinvestment in the Company's business or other discretionary uses. 20 RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998 The results of operations for the year ended December 31, 1999 are not comparable to results of operations for the same period in 1998 primarily due to the start-up of radio stations WCAA(FM) in New York on May 22, 1998 (WPAT(AM) was exchanged for WCAA(FM)), KRTX(AM/FM) in Houston on May 29, 1998, KLQV(FM) and KLNV(FM) in San Diego on August 10, 1998, KHOT(FM) in Phoenix on April 5, 1999, the radio station broadcasting at 94.1 MHz (KLNO(FM)) in Dallas on September 24, 1999, and the start-up of HBC Radio Network (a radio network sales and programming division) on January 1, 1999. Net revenues increased by $33.8 million or 20.6% to $197.9 million for the year ended December 31, 1999 from $164.1 million for the same period in 1998. Net revenues increased for the year ended December 31, 1999, compared to the same period in 1998 primarily because of (a) revenue growth of same stations, (b) revenues from start-up stations which were not operating for all or part of the year ended December 31, 1998, and (c) time brokerage agreement fees associated with the radio station broadcasting at 94.1 MHz (KLNO(FM)) in Dallas of $1.4 million for the year ended December 31, 1999. Had the WCAA(FM) acquisition occurred on January 1, 1998, net revenues, on a pro forma basis, for the year ended December 31, 1999 would have increased 19.6% compared to the same period in 1998. Operating expenses increased by $10.5 million or 11.0% to $106.3 million for the year ended December 31, 1999 from $95.8 million for the same period in 1998. Operating expenses increased primarily due to operating expenses of start-up stations. As a percentage of net revenues, operating expenses decreased to 53.7% from 58.4% for the years ended December 31, 1999 and 1998, respectively. Had the WCAA(FM) acquisition occurred on January 1, 1998, operating expenses, on a pro forma basis, for the year ended December 31, 1999 would have increased 10.2% compared to the same period in 1998. Operating income before corporate expenses, depreciation and amortization ("broadcast cash flow") for the year ended December 31, 1999 increased 34.1% to $91.6 million, compared to $68.3 million for the year ended December 31, 1998. As a percentage of net revenues, broadcast cash flow increased to 46.3% from 41.6% for the years ended December 31, 1999 and 1998, respectively. Had the WCAA(FM) acquisition occurred on January 1, 1998, broadcast cash flow, on a pro forma basis, for the year ended December 31, 1999 would have increased 32.9% compared to the same period in 1998. Corporate expenses increased by $1.4 million or 25.5% to $6.9 million for the year ended December 31, 1999 from $5.5 million for the same period in 1998. The increase was primarily due to higher staffing costs and the one-time expenses related to the resignation of an executive officer in the first quarter of 1999. As a percentage of net revenues, corporate expenses increased to 3.5% from 3.4% for the years ended December 31, 1999 and 1998, respectively. EBITDA for the year ended December 31, 1999 increased 34.9% to $84.7 million compared to $62.8 million for the same period in 1998. As a percentage of net revenues, EBITDA increased to 42.8% from 38.3% for the years ended December 31, 1999 and 1998, respectively. Depreciation and amortization for the year ended December 31, 1999 increased 35.1% to $28.5 million compared to $21.1 million for the same period in 1998. The increase is due to radio station acquisitions and capital expenditures. Interest income, net decreased to $1.8 million from $2.6 million for the years ended December 31, 1999 and 1998, respectively. The decrease for the year ended December 31, 1999 compared to the same period in 1998 was because the proceeds from the June 1999 and November 1999 secondary public stock offerings ("June 1999 Offering" and "November 1999 Offering") were received later in the year in comparison to the proceeds of the January 1998 secondary public stock offering ("January 1998 Offering"). 21 Income tax expense increased from $17.7 million for the year ended December 31, 1998 to $23.8 million for the same period in 1999. The increase was primarily due to income before income tax increasing from $44.6 million for the year ended December 31, 1998 to $58.0 million for the same period in 1999. The effective tax rates for the years ended December 31, 1998 and 1999 are 39.8% and 41.1%, respectively. The increase in the effective tax rate in 1999 is due to an increase in the effective state tax rate. For the year ended December 31, 1999, net income totaled $34.2 million ($0.66 per common share - diluted) compared to $26.9 million ($0.54 per common share - diluted) in the same period in 1998. RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997. The results of operations for the year ended December 31, 1998 are not comparable to results of operations for the same period in 1997 primarily due to (a) the merger with Tichenor Media System, Inc. ("Tichenor Merger") which closed February 14, 1997, and (b) the start-up of radio stations KSCA(FM) in Los Angeles on February 5, 1997, WCAA(FM) in New York on May 22, 1998 (WPAT(AM) was exchanged for WCAA(FM)), KRTX(AM/FM) in Houston on May 29, 1998, and KLQV(FM) and KLNV(FM) in San Diego on August 10, 1998. Net revenues for the year ended December 31, 1998 increased by $27.5 million, or 20.1% to $164.1 million compared to $136.6 million for the year ended December 31, 1997. Net revenues increased for the year ended December 31, 1998, compared to the same period in 1997 primarily because of (a) revenue growth of same stations, and (b) revenues from start-up stations which operated for part of the year ended December 31, 1998 and none in 1997 since it was prior to their acquisition. Had the WCAA(FM) acquisition and the Tichenor Merger occurred on January 1, 1997, net revenues, on a pro forma basis, for the year ended December 31, 1998 would have increased 13.2% compared to the same period in 1997. Operating expenses increased by $13.7 million, or 16.7%, to $95.8 million for the year ended December 31, 1998 compared to $82.1 million for the same period in 1997. Operating expenses increased primarily due to operating expenses of start-up stations. As a percentage of net revenues, operating expenses decreased to 58.4% from 60.1% for the years ended December 31, 1998 and 1997, respectively. Had the WCAA(FM) acquisition and the Tichenor Merger occurred on January 1, 1997, operating expenses, on a pro forma basis, for the year ended December 31, 1998 would have increased 8.3% compared to the same period in 1997. Broadcast cash flow increased $13.8 million, or 25.3% to $68.3 million for the year ended December 31, 1998 compared to $54.5 million for the year ended December 31, 1997. As a percentage of net revenues, broadcast cash flow increased to 41.6% from 39.9% for the years ended December 31, 1998 and 1997, respectively. Had the WCAA(FM) acquisition and the Tichenor Merger occurred on January 1, 1997, broadcast cash flow, on a pro forma basis, for the year ended December 31, 1998 would have increased 20.9% compared to the same period in 1997. Corporate expenses for the year ended December 31, 1998 increased by $0.9 million, or 19.6%, to $5.5 million compared to $4.6 million for the year ended December 31, 1997. The increase was primarily due to higher staffing costs after the Tichenor Merger. EBITDA for the year ended December 31, 1998 increased 25.9% to $62.8 million compared to $49.9 million for the same period in 1997. As a percentage of net revenues, EBITDA increased to 38.3% from 36.5% for the years ended December 31, 1998 and 1997, respectively. 22 Depreciation and amortization for the year ended December 31, 1998 increased 41.6% to $21.1 million compared to $14.9 million for the year ended December 31, 1997. The increase is due to radio station acquisitions, capital expenditures, and the additional depreciation and amortization associated with the Tichenor Merger included in all of the year ended December 31, 1998 compared to a portion of the same period in 1997. Interest expense, net of interest income decreased from $3.5 million for the year ended December 31, 1997 to $2.6 million of interest income, net of interest expense for the year ended December 31, 1998. The reduction in interest expense was the result of the repayment of debt funded from the January 1998 Offering. Interest income increased due to an increase in invested cash from the January 1998 Offering. Other, net decreased from $0.1 million of other expense for the year ended December 31, 1997 to $0.3 million of the other income for the year ended December 31, 1998. In 1998, the remaining balance of an accrual of costs relating to unconsummated acquisitions of $0.3 million which was made in a prior reporting period was reversed. Income tax expense increased from $12.6 million for the year ended December 31, 1997 to $17.7 million for the year ended December 31, 1998. The increase was primarily due to income before income tax increasing from $31.4 million for the year ended December 31, 1997 to $44.6 million for the year ended December 31, 1998. The effective tax rates for the years ended December 31, 1997 and 1998 are 40.2% and 39.8%, respectively. Net income of $18.8 million ($0.45 per share - basic and diluted) was generated for the year ended December 31, 1997 compared to net income of $26.9 million ($0.54 per share - diluted) in the same period in 1998. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities for the year ended December 31, 1999 was $61.6 million as compared to $57.0 million for the same period in 1998. Net cash used in investing activities was $226.1 and $246.3 million for the years ended December 31, 1999 and 1998, respectively. The $20.2 million decrease from 1998 to 1999 is mostly due to $27.7 million more spent during the 1998 year on radio station acquisitions than the comparable period of 1999 offset somewhat by a $6.5 million increase in 1999 in property and equipment acquisitions. Net cash provided by financing activities was $369.3 and $193.1 million for the years ended December 31, 1999 and 1998, respectively. The $176.2 million increase from 1998 to 1999 is due to the proceeds of the June 1999 Offering and the November 1999 Offering being larger than those of the January 1998 Offering. Generally, capital expenditures are made with cash provided by operations. Capital expenditures totaled $11.6 and $5.1 million for the years ended December 31, 1999 and 1998, respectively. Approximately $7.2 million of the capital expenditures incurred during the year ended December 31, 1999 related to radio signal upgrade projects for four different radio stations and the build-out of studios related to acquisitions made in New York, Phoenix and Los Angeles. On October 15, 1999, the Company entered into an asset purchase agreement to acquire for $75.0 million the assets of KRCD(FM) and KRCV(FM) (formerly KACE(FM) and KRTO(FM)), serving the Los Angeles market. The transaction closed on January 31, 2000. The asset acquisition was funded with a portion of the proceeds from the November 1999 Offering. Available cash on hand plus cash flow provided by operations was sufficient to fund the Company's operations, meet its debt obligations, and to fund capital expenditures. Management believes the Company will have sufficient cash on hand and cash provided by operations to finance its operations, satisfy its debt 23 service requirements, and to fund capital expenditures. Management regularly reviews potential acquisitions. Future acquisitions will be financed primarily through proceeds from borrowings under the $294.0 million revolving credit facility ( "Credit Facility"), proceeds from securities offerings, and/or from cash provided by operations. STOCKHOLDERS' EQUITY On November 24, 1999, we completed the November 1999 Offering, selling 3,051,290 shares of Class A Common Stock at $81.70 per share, net of underwriters' discounts and commissions. The net proceeds of the offering were approximately $248.7 million. On June 7, 1999, we completed the June 1999 Offering, selling 2,000,000 shares of Class A Common Stock at $60.03 per share, net of underwriters' discounts and commissions. The net proceeds of the offering were approximately $119.9 million. On January 22, 1998, we completed the January 1998 Offering, selling 5,175,000 shares of Class A Common Stock for $39.75 per share, after underwriters' discounts and commissions. The net proceeds of the offering were approximately $205.1 million. LONG-TERM DEBT On April 30, 1999, we borrowed $20.0 million on the Credit Facility and repaid the entire amount by June 30, 1999 from the proceeds of the June 1999 Offering. In September 1999, we borrowed $51.0 million on the Credit Facility and repaid the entire amount by December 31, 1999 with cash generated from operating activities and proceeds of the November 1999 Offering. At December 31, 1997, we had outstanding borrowings of $12.0 million under the Credit Facility. On January 29, 1998, we repaid the entire amount outstanding under the Credit Facility with proceeds of the January 1998 Offering. In August 1998, we borrowed $18.0 million which was subsequently repaid in December 1998 with cash generated from operating activities. Borrowings under the Credit Facility bear interest at a rate based on LIBOR plus an applicable margin as determined by the Company's leverage ratio. The Credit Facility is secured by the stock of the Company's subsidiaries. Availability under the Credit Facility reduces quarterly commencing September 30, 1999 and ending December 31, 2004. Our ability to make additional borrowings under the Credit Facility is subject to compliance with certain financial ratios and other conditions set forth in the Credit Facility. We may elect under the terms of the Credit Facility to increase the facility by $150.0 million. INFLATION Inflation has affected financial performance due to higher operating expenses. Although the exact impact of inflation is indeterminable, we have offset these higher costs by increasing the effective advertising rates of most of our radio stations. RATIO OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS The ratios of earnings to fixed charges for the Company are computed by dividing pretax income from continuing operations after certain adjustments, by fixed charges. Fixed charges consist of interest expense on all long and short-term borrowings and the estimated interest portion of rental expense. Set forth 24 below are the ratios of earnings to fixed charges and earnings to combined fixed charges and preferred stock dividends (in thousands except ratios):
Three Months Ended Year Ended December 31, December 31, Year Ended September 30, -------------------------------------- ------------ ------------------------ 1999 1998 1997 1996 1996 1995 ---------- --------- --------- ------------ ------------------------ Earnings to Fixed Charges 20.0 14.6 7.5 1.7 - 1.6 Deficiency of Earnings to Cover Fixed Charges - - - - $29,092 - Earnings to Combined Fixed Charges and Preferred Stock Dividends 20.0 14.6 7.5 1.7 - 1.6 Deficiency of Earnings to Cover Fixed Charges and Preferred Stock Dividends - - - - $29,112 -
YEAR 2000 In 1999, we completed our remediation and testing of systems for Year 2000 compliance. As a result of these efforts, we experienced no significant disruptions in mission critical information and non-information technology systems and we believe those systems successfully responded to the Year 2000 date changes. We are not aware of any material problems resulting from Year 2000 issues, either with our services, our internal systems, or the products and services of third parties. We will continue to monitor our mission critical computer applications and those of our suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. However, the Company considers the possibility that latent matters could arise to be remote and does not anticipate any significant problems due to Year 2000 issues. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to interest rate risk on both the interest earned on cash and cash equivalents and interest paid on borrowings under the Credit Facility. A change of 10% in the interest rate earned on short-term investments and interest paid under the Credit Facility would not have had a significant impact on our historical financial statements. 25 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page Number Independent Auditors' Report ............................................................................27 Consolidated Balance Sheets as of December 31, 1999 and 1998 .............................................28 Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997 ...............29 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998 and 1997..................................................................................................30 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997................31 Notes to Consolidated Financial Statements ...............................................................32
26 INDEPENDENT AUDITORS' REPORT The Board of Directors Hispanic Broadcasting Corporation: We have audited the accompanying consolidated balance sheets of Hispanic Broadcasting Corporation (formerly Heftel Broadcasting Corporation) and subsidiaries (the "Company") as of December 31, 1999 and 1998 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule included at Item 14 (a) (2). These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hispanic Broadcasting Corporation and subsidiaries as of December 31, 1999 and 1998 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Dallas, Texas February 10, 2000 27 HISPANIC BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT NUMBER OF SHARES) ASSETS
December 31, ------------------------------ 1999 1998 ----------- ----------- Current assets: Cash and cash equivalents $ 215,136 $ 10,293 Accounts receivable, net of allowance of $1,855 in 1999 and $2,301 in 1998 40,621 34,309 Prepaid expenses and other current assets 825 457 ----------- ----------- Total current assets 256,582 45,059 ----------- ----------- Property and equipment, at cost: Land 7,163 7,966 Buildings and improvements 7,731 7,366 Broadcast and other equipment 38,895 28,147 Furniture and fixtures 10,351 8,356 ----------- ----------- 64,140 51,835 Less accumulated depreciation 23,217 15,830 ----------- ----------- 40,923 36,005 ----------- ----------- Intangible assets: Broadcast licenses 789,641 569,915 Cost in excess of fair value of net assets acquired 99,711 97,553 Other intangible assets 15,833 14,862 ----------- ----------- 905,185 682,330 Less accumulated amortization 56,834 36,129 ----------- ----------- 848,351 646,201 ----------- ----------- Deferred charges and other assets 11,282 19,424 ----------- ----------- Total assets $ 1,157,138 $ 746,689 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,210 $ 2,063 Accrued expenses 18,028 22,201 Income taxes payable 6,107 3,506 Current portion of long-term obligations 100 121 ----------- ----------- Total current liabilities 25,445 27,891 ----------- ----------- Long-term obligations, less current portion 1,448 1,547 ----------- ----------- Deferred income taxes 103,992 94,630 ----------- ----------- Commitments and contingencies Stockholders' equity: Preferred Stock, cumulative, $.001 par value; authorized 5,000,000 shares; no shares issued or outstanding - - Class A Common Stock, $.001 par value; authorized 100,000,000 shares in 1999 and 1998; issued and outstanding 40,244,778 shares in 1999 and 35,171,980 shares in 1998 40 35 Class B Common Stock, convertible, $.001 par value; authorized 50,000,000 shares; issued and outstanding 14,156,470 shares 14 14 Additional paid-in capital 1,034,791 665,340 Accumulated deficit (8,592) (42,768) ----------- ----------- Total stockholders' equity 1,026,253 622,621 ----------- ----------- Total liabilities and stockholders' equity $ 1,157,138 $ 746,689 =========== ===========
See accompanying notes to consolidated financial statements. 28 HISPANIC BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE DATA)
Year Ended December 31, --------------------------------------------- 1999 1998 1997 --------- --------- --------- Revenues $ 225,301 $ 186,779 $ 154,869 Agency commissions 27,381 22,657 18,285 --------- --------- --------- Net revenues 197,920 164,122 136,584 Operating expenses 106,288 95,784 82,065 Depreciation and amortization 28,492 21,149 14,928 --------- --------- --------- Operating income before corporate expenses 63,140 47,189 39,591 Corporate expenses 6,982 5,451 4,579 --------- --------- --------- Operating income 56,158 41,738 35,012 --------- --------- --------- Other income (expense): Interest income 3,438 4,680 406 Interest expense (1,607) (2,046) (3,947) Other, net - 252 (82) --------- --------- --------- 1,831 2,886 (3,623) --------- --------- --------- Income before income tax 57,989 44,624 31,389 Income tax 23,813 17,740 12,617 --------- --------- --------- Net income $ 34,176 $ 26,884 $ 18,772 ========= ========= ========= Net income per common share: Basic $ 0.67 $ 0.55 $ 0.45 Diluted $ 0.66 $ 0.54 $ 0.45 Weighted average common shares outstanding: Basic 50,783 49,021 41,671 Diluted 51,464 49,348 41,792
See accompanying notes to consolidated financial statements. 29 HISPANIC BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS EXCEPT NUMBER OF SHARES)
Common Stock Additional Preferred ------------------- paid-in Accumulated Stock Class A Class B capital deficit Total --------- ------- ------- ---------- ----------- ----------- Balance at December 31, 1996 $ - $ 11 $ - $ 102,578 $ (88,424) $ 14,165 Net proceeds from issuance of 9,660,000 shares of Class A Common Stock - 5 - 176,363 - 176,368 Class A Common Stock issued for Tichenor acquisition - 6 - 180,648 - 180,654 Conversion of Class A Common Stock into Class B Common Stock - (7) 7 - - - Two-for-one stock split - 15 7 (22) - - Net income - - - - 18,772 18,772 ------- ------ ------ ---------- ---------- ----------- Balance at December 31, 1997 - 30 14 459,567 (69,652) 389,959 Net proceeds from issuance of 5,193,232 shares of Class A Common Stock - 5 - 205,773 - 205,778 Net income - - - - 26,884 26,884 ------- ------ ------ ---------- ---------- ----------- Balance at December 31, 1998 - 35 14 665,340 (42,768) 622,621 Net proceeds from issuance of 5,072,798 shares of Class A Common Stock - 5 - 369,451 - 369,456 Net income - - - - 34,176 34,176 ------- ------ ------ ---------- ---------- ----------- Balance at December 31, 1999 $ - $ 40 $ 14 $1,034,791 $ (8,592) $ 1,026,253 ======= ====== ====== ========== ========== ===========
See accompanying notes to consolidated financial statements. 30 HISPANIC BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Year Ended December 31, ---------------------------------------------- 1999 1998 1997 ---------------------------------------------- Cash flows from operating activities: Net income $ 34,176 $ 26,884 $ 18,772 Adjustments to reconcile net income to net cash provided by operating activities: Provision for bad debts 1,869 1,418 2,757 Depreciation and amortization 28,492 21,149 14,928 Amortization of debt facility fee included in interest expense 156 160 133 Deferred income taxes 8,006 9,944 8,107 Changes in operating assets and liabilities: Accounts receivable, net (8,338) (6,328) (4,997) Prepaid expenses and other current assets (377) 361 360 Accounts payable (775) (26) (4,771) Accrued expenses (4,173) 3,519 2,789 Income taxes payable 2,601 156 5,507 Other, net 4 (252) 207 --------- --------- --------- Net cash provided by operating activities 61,641 56,985 43,792 --------- --------- --------- Cash flows from investing activities: Acquisitions of radio stations (208,921) (236,648) (1,097) Property and equipment acquisitions (11,578) (5,086) (4,305) Dispositions of property and equipment 951 340 294 Additions to intangible assets (144) (56) (2,777) Increase in other noncurrent assets (6,441) (4,876) (15,134) --------- --------- --------- Net cash used in investing activities (226,133) (246,326) (23,019) --------- --------- --------- Cash flows from financing activities: Borrowings on long-term obligations 71,000 18,000 56,000 Payments on long-term obligations (71,121) (30,894) (250,827) Payment of deferred financing costs - - (1,232) Proceeds from stock issuances 369,456 205,975 177,051 --------- --------- --------- Net cash provided by (used in) financing activities 369,335 193,081 (19,008) --------- --------- --------- Net increase in cash and cash equivalents 204,843 3,740 1,765 Cash and cash equivalents at beginning of period 10,293 6,553 4,788 --------- --------- --------- Cash and cash equivalents at end of period $ 215,136 $ 10,293 $ 6,553 ========= ========= =========
See accompanying notes to consolidated financial statements. 31 HISPANIC BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Hispanic Broadcasting Corporation (the "Company", formerly Heftel Broadcasting Corporation), through its subsidiaries, owns and operates 45 Spanish-language broadcast radio stations serving 13 markets throughout the United States (Los Angeles, New York City, Miami, San Francisco/San Jose, Chicago, Houston, San Antonio, Dallas/Fort Worth, McAllen/Brownsville/Harlingen, San Diego, Phoenix, El Paso and Las Vegas). BASIS OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Hispanic Broadcasting Corporation and its wholly-owned subsidiaries. The Company consolidates the accounts of subsidiaries when it has a controlling financial interest (over 50%) in the outstanding voting shares of the subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes to financial statements. Actual results could differ from those estimates. CASH EQUIVALENTS Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less. INVESTMENTS The Company uses the equity method to account for investments when it does not have a controlling interest but has the ability to exercise significant influence over the operating and/or financial decisions of the investee. Investments where the Company does not exert significant influence are accounted for using the cost method. Investments at December 31, 1999 (included in deferred charges and other assets) consist primarily of 50% interests in entities which own transmission towers that are leased to the Company and an interest in a company which is developing the technology for a digital radio broadcasting system. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Expenditures for significant renewals and betterments are capitalized. Repairs and maintenance are charged to expense as incurred. Depreciation is provided in amounts sufficient to relate the asset cost to operations over the estimated useful lives (two to forty years) on a straight-line basis. Leasehold improvements are depreciated over the life of the lease or the estimated service life of the asset, whichever is shorter. Gains or losses from disposition of property and equipment are recognized in the statement of operations. 32 INTANGIBLE ASSETS Intangible assets are recorded at cost. Amortization of intangible assets is provided in amounts sufficient to charge the asset cost to operations over the estimated useful lives on a straight-line basis. The estimated useful lives are as follows: Broadcast licenses 40 years Cost in excess of fair value of net assets acquired principally 40 years Other intangibles 3 - 40 years
The Company evaluates periodically the propriety of the carrying amount of intangible assets, including goodwill, as well as the amortization period to determine whether current events or circumstances warrant adjustments to the carrying value and/or revised estimates of useful lives. This evaluation consists of the projection of undiscounted income before depreciation, amortization, nonrecurring charges and interest for each of the Company's radio stations over the remaining estimated useful life of the broadcast licenses. If such projections indicate that undiscounted cash flows are not expected to be adequate to recover the carrying amounts of the related intangible assets, a loss is recognized to the extent the carrying amount of the asset exceeds its fair value. At this time, the Company believes that no impairment of goodwill and other intangible assets has occurred and that no reduction of the estimated useful lives is warranted. REVENUE RECOGNITION Revenue is derived primarily from the sale of advertising time to local and national advertisers. Revenue is recognized as commercials are broadcast. ADVERTISING COSTS The Company incurs various marketing and promotional costs to add and maintain listenership. These costs are charged to expense in the year incurred and totaled approximately $4.2, $6.4 and $4.0 million for the years ended December 31, 1999, 1998 and 1997, respectively. BARTER TRANSACTIONS Barter transactions represent advertising time exchanged for promotional items, advertising, supplies, equipment and services. Barter transactions are recorded at the estimated fair value of the goods or services received. Revenues from barter transactions are recognized as income when commercials are broadcast. Expenses are recognized when goods or services are received or used. Barter transactions are not significant to the Company's consolidated financial statements. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. 33 EARNINGS PER SHARE Basic earnings per common share is based on net earnings after preferred stock dividend requirements, if any, and the weighted average number of common shares outstanding during each year. Diluted earnings per common share reflects the incremental increase in the weighted average number of common shares due to the dilutive effect of stock options and the Employee Stock Purchase Plan. DERIVATIVE FINANCIAL INSTRUMENTS The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used, from time to time, to manage well-defined interest rate risks related to interest on the Company's outstanding debt. There were no outstanding swap agreements or other derivative financial instruments at December 31, 1999 or 1998. As interest rates change under interest rate swap and cap agreements, the differential to be paid or received is recognized as an adjustment to interest expense. FINANCIAL INSTRUMENTS The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable and payable, approximate fair value due to the relatively short maturity of these instruments. The carrying amount of long-term obligations, including the current portion, approximates fair value based upon quoted interest rates for the same or similar debt issues. CREDIT RISK In the opinion of management, credit risk with respect to accounts receivable is limited due to the large number of diversified customers and the geographic diversification of the Company's customer base. The Company performs ongoing credit evaluations of its customers and believes that adequate allowances for uncollectible accounts receivable are maintained. STOCK BASED COMPENSATION The Company accounts for stock options using the intrinsic-value method as outlined under Accounting Principles Board Opinion No. 25 ("APB 25"), ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and related interpretations. Under APB 25, the Company does not recognize compensation expense related to employee stock options since options are not granted at a price below the market value of the underlying common stock on the date of grant. In accordance with Statement of Financial Accounting Standards No. 123 ("SFAS 123"), ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company has disclosed pro forma net income and net income per share using the fair-value method in calculating compensation expense. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform with the current year presentation. 34 2. ACQUISITIONS AND DISPOSITIONS 1999 ACQUISITIONS On January 27, 1999, the Company entered into an asset purchase agreement to acquire for $18.3 million the assets of KHOT(FM), serving the Phoenix market (the "Phoenix Acquisition"). The Phoenix Acquisition closed on April 5, 1999. The asset acquisition was funded with cash generated from operations. Immediately after closing, the station's programming was converted to a Spanish-language format. On March 1, 1999, the Company entered into an asset purchase agreement to acquire for $20.3 million the assets of KISF(FM), serving the Las Vegas market (the "Las Vegas Acquisition"). The Las Vegas Acquisition closed on April 30, 1999. The asset acquisition was funded with a $20.0 million borrowing from the Company's $294.0 million revolving credit facility (the "Credit Facility") and $0.3 million cash generated from operations. Immediately after closing, the station's programming was converted to a Spanish-language format. On January 2, 1997, the Company acquired an option to purchase all of the assets used in connection with the operation of KSCA(FM), a radio station serving the Los Angeles market (the "KSCA Option"). In connection with the acquisition of the KSCA Option, the Company began providing Spanish-language programming to KSCA(FM) under a time brokerage agreement on February 5, 1997. The Company exercised the KSCA Option and on September 17, 1999, the Company acquired the assets of KSCA(FM) for $118.1 million. The Company had previously paid $13.0 million to acquire and renew the option to purchase the assets of KSCA(FM) and such payments were subtracted from the purchase price at closing. To fund the acquisition, the Company borrowed $38.0 million from the Credit Facility and used $67.1 million of cash. The cash was generated from operating activities and proceeds of the June 1999 secondary public stock offering (the "June 1999 Offering"). On July 6, 1999, the Company entered into an agreement to acquire from a nonaffiliated trust for $65.0 million, the FCC licenses and transmission equipment of a radio station broadcasting at 94.1 MHz (KLNO(FM)), serving the Dallas/Fort Worth market (the "Dallas Acquisition"). The Dallas Acquisition closed on September 24, 1999. To fund the acquisition, the Company borrowed $8.0 million from the Credit Facility and used $57.0 million of cash. The cash was generated from operating activities and proceeds of the June 1999 Offering. With the Dallas Acquisition, the Company assumed a time brokerage agreement whereby an unaffiliated party provided the programming to the radio station broadcasting at 94.1 MHz until January 31, 2000. The time brokerage payments ranged from $12,947 to $15,618 per day. Immediately after the time brokerage agreement terminated, the station's programming was converted to a Spanish-language format. 35 1998 ACQUISITIONS On December 1, 1997, the Company entered into an asset exchange agreement to exchange WPAT(AM), serving the New York City market, and $115.5 million in cash for the assets of WCAA(FM) (formerly WNWK(FM)), serving the New York City market (the "New York Acquisition"). The New York Acquisition closed on May 22, 1998. The asset exchange was funded with a portion of the proceeds from the January 1998 secondary public stock offering (the "January 1998 Offering"). Immediately after closing, the station's programming was converted to a Spanish-language format. On March 25, 1998, the Company entered into an asset purchase agreement to acquire the assets of KLTN(FM) (formerly KKPN(FM)), serving the Houston market, for $54.0 million (the "Houston Acquisition"). The Houston Acquisition closed on May 29, 1998. The asset acquisition was funded with a portion of the proceeds from the January 1998 Offering. Immediately after closing, the station's programming was converted to a Spanish-language format. The Company entered into an asset purchase agreement on May 26, 1998, to acquire the assets of KLQV(FM) and KLNV(FM) (formerly KJQY(FM) and KKLQ(FM)) serving the San Diego market (the "San Diego Acquisition") for $65.2 million. The San Diego Acquisition closed on August 10, 1998. The asset acquisition was funded with a portion of the proceeds from the January 1998 Offering, an additional $18.0 million borrowing from the Company's Credit Facility and cash generated from operations. Immediately after closing, the programming of the stations was converted to two Spanish-language formats. 1997 ACQUISITIONS AND DISPOSITION On February 14, 1997, the Company completed its acquisition of Tichenor Media System, Inc. ("Tichenor"), a national radio broadcasting company engaged in the business of acquiring, developing and programming Spanish-language radio stations (the "Tichenor Merger"). At the time of the Tichenor Merger, Tichenor owned or programmed 20 radio stations in six of the ten largest Hispanic markets in the United States. The merger was effected through the merger of a wholly-owned subsidiary of the Company with and into Tichenor. In connection with the merger, management of Tichenor assumed management responsibilities of the Company. Pursuant to the Tichenor Merger, the former Tichenor shareholders and warrant holders received an aggregate of 11,379,756 shares of Common Stock. At the time of the Tichenor Merger, Tichenor had outstanding approximately $72.0 million of long-term debt, which was subsequently refinanced by the Company. In addition, all of Tichenor's outstanding shares of 14% Senior Redeemable Cumulative Preferred Stock were redeemed for approximately $3.4 million. The total purchase price, including closing costs, allocated to net assets acquired was approximately $181.2 million. On August 13, 1997, the Company sold the assets of KINF(AM) which is licensed in Denton, Texas. The sales price net of selling expenses was $0.6 million, which approximated the book value of the assets. The Company closed on the purchase of the assets of KLTO(FM) in Rosenberg-Richmond (Houston), Texas on September 22, 1997. The purchase price was $3.2 million and was funded from operations. The final purchase price is contingent on an upgrade of the station's broadcast authorization from the Federal Communications Commission ("FCC") prior to April 1, 2004. Depending on whether the signal is fully or partially upgraded, the purchase price could increase to $14.0 million. 36 All of the acquisitions discussed above were accounted for using the purchase method of accounting. Accordingly, the accompanying financial statements include the accounts of the acquired businesses from the respective dates of acquisition. Unaudited pro forma results of operations for the year ended December 31, 1998, calculated as though the New York Acquisition had occurred at the beginning of 1998, is as follows (in thousands, except per share data):
Year Ended December 31, --------------------------- Historical Pro forma 1999 1998 ---------- --------- Net revenues $197,920 $165,402 Operating income 56,158 41,195 Net income 34,176 23,963 Net income per common share: Basic 0.67 0.49 Diluted 0.66 0.48
PENDING TRANSACTIONS On April 14, 1999, the Company entered into an agreement with Z-Spanish Media Corporation ("Z"), to exchange the assets of KRTX(FM), a radio station serving the Houston market, for the assets of KLNZ(FM), a radio station owned by Z serving the Phoenix market. Although the asset exchange has received all necessary governmental consents, the transaction has not closed. Pursuant to the terms of the asset exchange agreement, the Company has instituted arbitration proceedings seeking, among other relief, specific performance to compel the closing of the transaction. On October 15, 1999, the Company entered into an asset purchase agreement to acquire for $75.0 million the assets of KRCD(FM) and KRCV(FM) (formerly KACE(FM) and KRTO(FM)), serving the Los Angeles market (the "Los Angeles Acquisition"). The Los Angeles Acquisition closed on January 31, 2000. The asset acquisition was funded with a portion of the proceeds from the November 1999 secondary public stock offering (the "November 1999 Offering"). The stations' programming was converted to a single Spanish-language format in February 2000. 37 3. LONG-TERM OBLIGATIONS The following is a summary of long-term obligations outstanding as of December 31, 1999 and 1998 (in thousands):
1999 1998 ---------- ---------- Revolving credit facility payable to banks; aggregate commitment of $294.0 million; interest rate based on LIBOR plus an applicable margin as determined by the Company's leverage ratio; interest rates ranged from 5.29%to 5.81%during 1999; payable through December 2004; secured by 100%of the common stock of the Company's wholly-owned subsidiaries; the Company is required to comply with certain financial and nonfinancial covenants $ - $ - Various loans net of imputed interest of 8.1%, payable in monthly installments through 2001 108 198 Prize awards net of imputed interest (10%to 12%), payable in varying annual installments through 2044 1,440 1,470 ------ ------ 1,548 1,668 Less current portion 100 121 ------ ------ $1,448 $1,547 ====== ======
The Company's ability to make additional borrowings under the Credit Facility is subject to compliance with certain financial ratios and other conditions set forth in the Credit Facility. As of December 31, 1999, the Company had $294.0 million of credit available, and may elect under the terms of the Credit Facility to increase the facility by $150.0 million. The Credit Facility commitment began reducing on September 30, 1999 and continues quarterly through December 31, 2004. Maturities of long-term obligations for the five years subsequent to December 31, 1999 are as follows (in thousands):
YEAR AMOUNT ---- ------ 2000 $ 100 2001 23 2002 6 2003 7 2004 8 Thereafter 1,404
Interest paid for the years ended December 31, 1999, 1998 and 1997 amounted to $1.7, $1.2, and $3.9 million, respectively. 38 4. COMMITMENTS AND CONTINGENCIES The Company leases office space and other property under noncancellable operating leases. Terms of the leases vary from three to thirty years. Certain leases have contingent rent clauses whereby rent is increased based on a change in the Consumer Price Index. Various leases have renewal options of five to ten years. Future minimum rental payments under noncancellable operating leases in effect at December 31, 1999 are summarized as follows (in thousands):
YEAR AMOUNT ---- ------- 2000 $ 4,754 2001 4,631 2002 4,382 2003 4,023 2004 3,669 Thereafter 19,995
Rent expense for the years ended December 31, 1999, 1998 and 1997 was $4.3, $3.4, and $2.6 million, respectively. The Company is subject to legal proceedings and other claims which have arisen in the ordinary course of its business and have not been fully adjudicated. These actions, when ultimately concluded, will not, in the opinion of management, have a material adverse effect upon the financial position, results of operations or liquidity of the Company. 5. STOCKHOLDERS' EQUITY COMMON STOCK On June 7, 1999, the Company completed the June 1999 Offering, selling 2,000,000 shares of Class A Common Stock at $60.03 per share, net of underwriters' discounts and commissions. The net proceeds of the offering were approximately $119.9 million. On November 24, 1999, the Company completed the November 1999 Offering, selling 3,051,290 shares of Class A Common Stock at $81.70 per share, net of underwriters' discounts and commissions. The net proceeds of the offering were approximately $248.7 million. On January 22, 1998, the Company completed the January 1998 Offering, selling 5,175,000 shares of Class A Common Stock at $39.75 per share, net of underwriters' discounts and commissions. The net proceeds of the offering were approximately $205.1 million. On February 10, 1997, the Company completed a secondary public stock offering selling 9,660,000 shares of its Class A Common Stock for $18.40 per share, net of underwriters' discounts and commissions. The net proceeds of the offering were approximately $176.4 million. On February 14, 1997, all of the outstanding shares of Class A Common Stock owned by Clear Channel Communications, Inc. ("Clear Channel") were converted to Class B Common Stock. Clear Channel owns all of the issued and outstanding Class B Common Stock. The rights of the Class A and Class B Common Stock are identical except that the Class B Common Stock has no voting rights, except in certain matters. Shares of Class B Common Stock are convertible into shares of Class A Common Stock, at Clear Channel's option, subject to any necessary governmental consents, including the consent of the FCC. On November 6, 1997, the Board of Directors of the Company authorized a two-for-one stock split payable in the form of a stock dividend of one share of common stock for each issued and outstanding share of common stock. The dividend was paid on December 1, 1997 to all holders of common stock at the close of business on November 18, 1997. All financial information related to 39 number of shares, per share amounts, stock option data and market prices of the Company's common stock have been restated to give effect to the split. PREFERRED STOCK The Company is authorized to issue 5,000,000 shares of $.001 par value Preferred Stock. The Preferred Stock may be issued in series, with the rights and preferences of each series established by the Company's Board of Directors. 6. INCOME TAXES The provision for income tax consists of the following (in thousands):
Year Ended December 31, ------------------------------------------- 1999 1998 1997 ------------------------------------------- Current: Federal $ 12,618 $ 6,103 $ 3,144 State 3,189 1,693 1,366 --------- --------- --------- Total current tax 15,807 7,796 4,510 --------- --------- --------- Deferred: Federal 7,146 9,515 7,783 State 860 429 324 --------- --------- --------- Total deferred tax 8,006 9,944 8,107 --------- --------- --------- Total income tax $ 23,813 $ 17,740 $ 12,617 ========= ========= =========
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 1999 and 1998 are as follows (in thousands):
1999 1998 -------- -------- Deferred tax assets: Net operating losses $ 970 $ 4,161 Other intangible assets 1,999 1,669 Long-term obligations - prize awards 561 575 Allowance for doubtful accounts receivable 724 910 Other 187 919 -------- -------- Total deferred tax assets 4,441 8,234 -------- -------- Deferred tax liabilities: Broadcast licenses 99,616 93,118 Property and equipment 1,477 2,095 Restructuring charges 7,333 7,395 Other 7 256 -------- -------- Total deferred tax liabilities 108,433 102,864 -------- -------- Net deferred tax liabilities $103,992 $ 94,630 ======== ========
40 The reconciliation of income tax expense computed at the federal statutory tax rate to the Company's actual income tax expense is as follows (in thousands):
Year Ended December 31, ------------------------------------------- 1999 1998 1997 ------------------------------------------- Federal income tax at statutory rate $ 20,296 $ 15,618 $ 10,986 State income taxes, net of federal benefit 2,632 1,115 942 Nondeductible and non-taxable items, net 885 1,007 689 --------- --------- --------- $ 23,813 $ 17,740 $ 12,617 ========= ========= =========
As of December 31, 1999, the Company had tax net operating loss carryforwards for state tax purposes of approximately $28.0 million which expire in 2018 if not used. Income taxes paid for the years ended December 31, 1999, 1998 and 1997 amounted to $13.3, $6.0 and $2.2 million, respectively. 7. EARNINGS PER SHARE The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations (in thousands):
Year Ended December 31, -------------------------------------------- 1999 1998 1997 -------------------------------------------- Numerator: Net income $ 34,176 $ 26,884 $ 18,772 ========= ========= ========= Denominator: Denominator for basic earnings per share 50,783 49,021 41,671 Effect of dilutive securities: Stock options 674 318 121 Employee Stock Purchase Plan 7 9 - --------- --------- --------- Denominator for diluted earnings per share 51,464 49,348 41,792 ========= ========= =========
8. RETIREMENT PLAN The Company has a defined contribution retirement savings plan (the "Plan"). The Plan covers all employees who have reached the age of 18 years and have been employed by the Company for at least one year. The Company matches participants' contributions to the Plan in an amount not to exceed $1,600. The Company, at the sole discretion of the Board of Directors, may make additional supplemental contributions to the Plan. The Company's expenses related to the Plan for the years ended December 31, 1999, 1998 and 1997 amounted to $0.3, $0.3, and $0.2 million, respectively. 41 9. STOCK OPTIONS In May 1997, the stockholders of the Company approved a stock incentive plan ("Long-Term Incentive Plan"), to be administered by the Board of Directors or by a sub-committee of the Board of Directors. The maximum number of shares of Class A Common Stock that may be the subject of awards at any one time shall be ten percent of the total number of shares of Class A Common Stock outstanding. Options granted under the Long-Term Incentive Plan have a ten-year term and vest one third at the end of years three, four and five. The stockholders of the Company also approved an Employee Stock Purchase Plan in May 1997. Under the plan, shares of the Company's common stock may be purchased at six-month intervals at 85% of the lower of the fair market value on the first or the last day of each six-month period. Employees may purchase shares having a value not exceeding 15% of their gross compensation during an offering period. During 1999, 1998 and 1997, employees purchased 17,453, 22,222 and 6,753 common shares at average prices of $51.43, $37.22 and $28.26, respectively. The Company issued 487,750, 369,650 and 753,000 stock options in 1999, 1998 and 1997, respectively, to various employees of the Company under its Long-Term Incentive Plan. The exercise prices ranged from $16.44 to $83.69 per share, the market prices at dates of issuance. The following is a summary of stock options outstanding and exercisable for the years ended December 31, 1997, 1998 and 1999 (in thousands, except per share data):
Number Weighted Average Of Shares Exercise Price Per Share -------------- ------------------------ Stock Options Outstanding: Options outstanding at December 31, 1996 6 $ 16.44 Granted 753 23.88 Forfeited (36) 23.50 -------- Options outstanding at December 31, 1997 723 23.84 Granted 370 36.26 Forfeited (52) 25.71 -------- Options outstanding at December 31, 1998 1,041 28.16 Granted 487 48.41 Forfeited (52) 34.55 -------- Options outstanding at December 31, 1999 1,476 34.62 ======== Exercisable Stock Options: Options exercisable at December 31, 1996 - - Vested 17 23.70 -------- Options exercisable at December 31, 1997 17 23.70 Vested 2 16.44 -------- Options exercisable at December 31, 1998 19 22.93 Vested 2 16.44 -------- Options exercisable at December 31, 1999 21 22.31 ========
42 Pro forma information regarding net income and net income per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The weighted average fair value at date of grant for options granted in the years ended December 31, 1999, 1998 and 1997 was $26.64, $19.49 and $13.17 per share, respectively. The fair value of these options was estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions:
1999 1998 1997 - ---------------------------------------------------------------------------------- Risk-free interest rate 6.11% 5.22% 6.55% Dividend yield 0.00% 0.00% 0.00% Volatility factor 50.39% 50.67% 50.00% Weighted average expected life 6 years 6 years 6 years
For purposes of pro forma disclosures, the estimated fair value of the options is expensed over the options' vesting period. Pro forma results of operations calculated as though the Company had adopted the provisions of SFAS 123 are as follows (in thousands, except per share data):
Year Ended December 31, ---------------------------------------------- 1999 1998 1997 ---------- ---------- ---------- Net income $ 31,389 $ 25,449 $ 18,147 Net income per common share: Basic 0.62 0.52 0.44 Diluted 0.61 0.52 0.44
The following is a summary of stock options outstanding and exercisable at December 31, 1999:
Weighted Average Range of Shares Remaining Exercise Prices Under Option Weighted Average Contractual Life Per Share (in thousands) Exercise Price Per Share (in years) - -------------------- -------------- ------------------------- ---------------- Stock Options Outstanding: $ 16.44 - $ 23.50 621 $ 23.43 7.4 24.69 - 36.25 348 35.17 8.3 37.50 - 48.88 424 42.11 9.2 68.00 - 83.69 83 77.75 9.8 ----- 1,476 ===== Exercisable Stock Options: $ 16.44 - $ 24.69 21 $ 22.31 7.3
43 10. OTHER FINANCIAL INFORMATION ACCRUED EXPENSES (IN THOUSANDS):
December 31, -------------------------- 1999 1998 --------- --------- Wages, salaries and benefits payable $ 4,136 $ 3,569 Commissions payable 5,559 7,366 Advertising payable 1,636 2,394 Other accrued expenses 6,697 8,872 --------- --------- $ 18,028 $ 22,201 ========= =========
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended December 31, 1999 and 1998 (in thousands, except per share data):
First Second Third Fourth Quarter Quarter Quarter Quarter --------- --------- --------- --------- Year ended December 31, 1999: Net revenues $ 37,709 $ 51,905 $ 52,370 $ 55,936 Net income 3,319 9,976 9,845 11,036 Net income per common share - basic and diluted 0.07 0.20 0.19 0.21 Year ended December 31, 1998: Net revenues $ 31,347 $ 44,393 $ 44,206 $ 44,176 Net income 4,344 7,803 7,104 7,633 Net income per common share - basic and diluted 0.09 0.16 0.14 0.15
12. SUBSEQUENT EVENT (UNAUDITED) On March 4, 2000, the Company entered into an agreement with subsidiaries of Clear Channel and AMFM Inc. to purchase for approximately $127.0 million the assets of KXPK(FM), KKFR(FM) and KEYI(FM), serving the Denver, Phoenix and Austin markets, respectively. The Company plans to spend approximately $4.0 million for new studios and other costs to operate these new radio stations. The closing of this asset acquisition is expected to occur during the third quarter of 2000. Immediately after closing, the programming of KXPK(FM) and KEYI(FM) will be converted to a Spanish-language format. The present audience of KKFR(FM) includes a large proportion of Hispanics and the programming will continue in its present format after closing. The closing of this transaction is subject to numerous conditions and approvals, including receipt of regulatory approvals under the federal communication laws, review by federal antitrust authorities, and completion of Clear Channel's merger with AMFM Inc. 44 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 45 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 with respect to the directors, nominees and executive officers of the Company is incorporated by reference to the information set forth under the caption "Election of Directors," "Executive Compensation and Other Matters" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Definitive Schedule 14A Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the Company's fiscal year-end. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated by reference to the information set forth under the caption "Executive Compensation and Other Matters" in the Company's Definitive Schedule 14A Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the Company's fiscal year-end. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated by reference to the information set forth under the captions "Security Ownership of Certain Beneficial Owners and Management" in the Company's Definitive Schedule 14A Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the Company's fiscal year-end. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated by reference to the information set forth under the caption "Certain Transactions" in the Company's Definitive Schedule 14A Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the Company's fiscal year-end. 46 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS The following financial statements have been filed under Item 8 of this report: Independent Auditors' Report Consolidated Balance Sheets as of December 31, 1999 and 1998 Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements 2. FINANCIAL STATEMENT SCHEDULES HISPANIC BROADCASTING CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (in thousands)
Additions ------------------------ Balance at Charged to Charged Balance Beginning Costs and to other Accounts at end Description of period expenses accounts Written off of period - -------------------------------------- ----------- ---------- --------- ------------ ---------- FOR THE YEAR ENDED DECEMBER 31, 1999: Allowance for Doubtful Accounts $2,301 $1,869 $283 $2,598 $1,855 FOR THE YEAR ENDED DECEMBER 31, 1998: Allowance for Doubtful Accounts 2,613 1,417 - 1,729 2,301 FOR THE YEAR ENDED DECEMBER 31, 1997: Allowance for Doubtful Accounts 1,128 2,757 - 1,272 2,613
47 3. EXHIBITS
EXHIBIT NUMBER DESCRIPTION - --------- ------------------------------------------------------------------ 3.1 Second Amended and Restated Certificate of Incorporation of the Company dated February 14, 1997 (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed March 3, 1997). 3.2 Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of the Company dated June 4, 1998 (incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q filed on November 11, 1998). 3.3 Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of the Company dated June 8, 1999 (incorporated by reference to Exhibit 3.3 to the Company's Form 10-Q filed on August 12, 1999). 3.4 Amended and Restated Bylaws of the Company (incorporated by reference to the Company's Registration Statement on Form S-1 (Registration No. 33-78370) filed on April 29, 1994, as amended ("Company's S-1")). 10.1 Lease dated May 15, 1987, between the Company and Hollywood and Vine Development Co. (incorporated by reference to Exhibit 10.15 of Company's S-1). 10.2 Tower Lease Agreement, dated April 13, 1990, between the Company and KTNQ/KLVE, Inc. (formerly Hispanic Broadcasting of California, Inc.), together with the Assignment and Assumption Agreement dated April 13, 1990 between the Company and The Tower Company (incorporated by reference to Exhibit 10.16 of Company's S-1). 10.3 Lease Agreement dated June 18, 1991 between Newcrow XI and KTNQ/KLVE, Inc. (incorporated by reference to Exhibit 10.17 of Company's S-1). 10.4 Reciprocal Easement Agreement, dated June 18 1991, between Newcrow XI and KTNQ/KLVE, Inc. (incorporated by reference to Exhibit 10.18 of Company's S-1). 10.5 Stock Option Plan (incorporated by reference to Exhibit 10.4 of Company's S-1). 10.6 Form of Indemnification Agreement (incorporated by reference to Exhibit 10.22 of Company's S-1). 10.7 Registration Rights Agreement, dated February 14, 1997, by and among the Company, McHenry T. Tichenor, Sr., McHenry T. Tichenor, Jr., Warren W. Tichenor, William E. Tichenor, Jean T. Russell, McHenry T. Tichenor, Jr., as Custodian for David T. Tichenor, Alta Subordinated Debt Partners III, L.P., Prime II Management, LP, PrimeComm, LP, Ricardo A. del Castillo, Jeffrey Hinson and David D. Lykes (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed March 3, 1997). 10.8 Employment Agreement, dated February 14, 1997, by and between the Company and McHenry T. Tichenor, Jr. (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed March 3, 1997). 10.9 Stockholders Agreement, dated February 14, 1997, by and among the Company and each of the stockholders listed on the signature pages thereto (incorporated by reference to Exhibit 10.4 to Schedule 13D of McHenry T. Tichenor, Jr. filed February 14, 1997).
48
EXHIBIT NUMBER DESCRIPTION - --------- ------------------------------------------------------------------ 10.10 Registration Rights Agreement, dated February 14, 1997, by and among the Company and Clear Channel Communications, Inc. (incorporated by reference to Exhibit 10.4 to the Company's Form 8-K filed March 3, 1997). 10.11 Credit Agreement among the Company and its subsidiaries, The Chase Manhattan Bank, as administrative agent, and certain other lenders, dated February 14, 1997 without Exhibits (Schedules omitted) (incorporated by reference to Exhibit 10.5 to the Company's Form 8-K filed on May 14, 1997). 10.12 Credit Agreement Amendment No. 1 among the Company and its subsidiaries, the Chase Manhattan Bank, as administrative agent, and certain other lenders, dated May 6, 1999 without Exhibits (Schedules omitted). 10.13 Hispanic Broadcasting Corporation Long-Term Incentive Plan (incorporated by reference to Appendix A to the Company's Definitive Proxy Statement filed on April 24, 1997 (Commission File No. 000-24516)). 10.14 Hispanic Broadcasting Corporation Amended and Restated 1997 Employee Stock Purchase Plan (incorporated by reference to the Company's Form S-8 filed on December 31, 1997). 10.15 Asset Purchase Agreement, dated April 28, 1999, by and among Golden West Broadcasters, Jacqueline Autry and Stanley B. Schneider, as co-trustees of the Autry Qualified Interest Trust, KTNQ/KLVE, Inc., HBC License Corporation and Heftel Broadcasting Corporation (incorporated by reference to the Company's Form 10-Q filed on May 14, 1999). 10.16 Asset Exchange Agreement, dated April 14, 1999, by and between Glendale Broadcasting, Inc., KLNZ License Company, LLC, and Heftel Broadcasting Corporation (incorporated by reference to the Company's Form 10-Q filed on August 12, 1999). 10.17 First Amendment To Asset Exchange Agreement, dated May 14, 1999, by and between Glendale Broadcasting, Inc., KLNZ License Company, LLC, and Heftel Broadcasting Corporation (incorporated by reference to the Company's Form 10-Q filed on August 12, 1999). 10.18 Bridge Loan Agreement, dated May 21, 1999, by and between Sunburst Texas, LP, Heftel Broadcasting Texas, L.P., and Heftel Broadcasting Corporation (incorporated by reference to the Company's Form 10-Q filed on August 12, 1999). 10.19 Asset Purchase Agreement, dated July 6, 1999, by and between SBT Communications Statutory Trust and HBC Broadcasting Texas, L.P. (incorporated by reference to the Company's Form 10-Q filed on August 12, 1999). 10.20 Time Brokerage Agreement dated September 22, 1999, by and between SBT Communications Statutory Trust and Sunburst Dallas, LP (incorporated by reference to the Company's Form 10-Q filed on November 1, 1999). 10.21 Asset Purchase Agreement dated October 15, 1999, by and between Cox Radio, Inc. and Hispanic Broadcasting Corporation (incorporated by reference to the Company's Form 10-Q filed on November 1, 1999).
49
EXHIBIT NUMBER DESCRIPTION - --------- ------------------------------------------------------------------ 10.22 Asset Purchase Agreement dated March 4, 2000, by and between Clear Channel Broadcasting, Inc., Clear Channel Broadcasting Licenses, Inc., AMFM Radio Licenses LLC, AMFM Ohio, Inc., AMFM Houston, Inc. and Hispanic Broadcasting Corporation. 11 Statement Regarding Computation of Per Share Earnings. 12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges. 12.2 Statement Regarding Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. 21 Subsidiaries of the Company. 23 Consent of KPMG LLP. 24 Power of Attorney (included on Signature Page). 27 Financial Data Schedule.
Registrant agrees to furnish supplementally a copy of any omitted schedules to the Commission upon request. (b) REPORTS ON FORM 8-K The Company filed a report on Form 8-K dated October 7, 1999, disclosing the acquisition of radio stations KSCA(FM) and KLNO(FM). The Company filed a report on Form 8-K on October 15, 1999, which included the unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 1998. 50 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 30, 1999. HISPANIC BROADCASTING CORPORATION By: /s/ McHenry T. Tichenor, Jr. ------------------------------------- McHenry T. Tichenor, Jr. President and Chief Executive Officer Each person whose signature appears below authorizes McHenry T. Tichenor, Jr. and Jeffrey T. Hinson, or either of them, each of whom may act without joinder of the other, to execute in the name of each such person who is then an officer or director of the Registrant and to file any amendments to this annual report on Form 10-K necessary or advisable to enable the Registrant to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, which amendments may make such changes in such report as such attorney-in-fact may deem appropriate. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ McHenry T. Tichenor, Jr. President, Chief Executive Officer and March 30, 2000 - ------------------------------------ Chairman of the Board of Directors McHenry T. Tichenor, Jr. /s/ Jeffrey T. Hinson Senior Vice President, Chief Financial March 30, 2000 - ------------------------------------ Officer and Treasurer Jeffrey T. Hinson (Principal Financial Officer) /s/ David P. Gerow - ------------------------------------ Vice President and Controller March 30, 2000 David P. Gerow (Principal Accounting Officer) /s/ McHenry T. Tichenor Director March 30, 2000 - --------------------------- McHenry T. Tichenor /s/ Robert W. Hughes Director March 30, 2000 - ------------------------------------ Robert W. Hughes /s/ James M. Raines Director March 30, 2000 - ------------------------------------ James M. Raines /s/ Ernesto Cruz Director March 30, 2000 - ------------------------------------ Ernesto Cruz
51 EX-10.12 2 EXHIBIT 10.12 EXHIBIT 10.12 AMENDMENT NO. 1 AMENDMENT NO. 1 dated as of May 6, 1999 among HEFTEL BROADCASTING CORPORATION (the "BORROWER"); the SUBSIDIARY GUARANTORS listed on the signature pages hereto; the LENDERS listed on the signature pages hereto (the "LENDERS"); and THE CHASE MANHATTAN BANK, as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the "ADMINISTRATIVE AGENT"). The Borrower, the Subsidiary Guarantors, the Lenders and the Administrative Agent are parties to a Credit Agreement dated as of February 14, 1997 (as heretofore modified and supplemented and in effect on the date hereof, the "CREDIT AGREEMENT") providing, subject to the terms and conditions thereof, for extensions of credit to be made by said Lenders to the Borrower. The Borrower, the Subsidiary Guarantors, the Lenders and the Administrative Agent wish to amend the Credit Agreement in certain respects, and accordingly, the parties hereto hereby agree as follows: Section 1. DEFINITIONS. Except as otherwise defined in this Amendment No. 1, terms defined in the Credit Agreement (as amended hereby) are used herein as defined therein. Section 2. AMENDMENTS. Subject to the satisfaction of the conditions precedent specified in Section 4 below, but effective as of the date hereof, the Credit Agreement shall be amended as follows: 2.01. References in the Credit Agreement (including references to the Credit Agreement as amended hereby) to "this Agreement" (and indirect references such as "hereunder", "hereby", "herein" and "hereof") shall be deemed to be references to the Credit Agreement as amended hereby. 2.02. Section 2.17(b) of the Credit Agreement shall be amended by replacing the dollar amount of "$30,000,000" therein in clause (i) of the last sentence thereof with "$75,000,000". 2.03. Section 7.03(i) of the Credit Agreement is hereby amended by replacing the dollar amount of "$30,000,000" therein with the dollar amount "$75,000,000". Section 3. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to the Lenders that the representations and warranties set forth in Article IV of the Credit Agreement are true and complete on the date hereof as if made on and as of the date hereof and as if each reference in said Article IV to the Credit Agreement included reference to the Credit Agreement as amended by this Amendment No. 1. Section 4. CONDITIONS PRECEDENT. As provided in Section 2 above, the amendments to the Credit Agreement set forth in said Section 2 shall become effective, as of the -2- date hereof, upon the execution and delivery by each of the Borrower, the Subsidiary Guarantors, and Lenders representing Required Lenders. Section 5. MISCELLANEOUS. Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect. This Amendment No. 1 may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment No. 1 by signing any such counterpart. This Amendment No. 1 shall be governed by, and construed in accordance with, the law of the State of New York. -3- IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed and delivered as of the day and year first above written. HEFTEL BROADCASTING CORPORATION By: /s/ Jeffrey T. Hinson ------------------------------- Title: Senior Vice President SUBSIDIARY GUARANTORS --------------------- HEFTEL BROADCASTING TEXAS, L.P. By Heftel GP Texas, Inc., its general partner HBC BROADCASTING TEXAS, INC. HBC CHICAGO, INC. HBC FLORIDA, INC. HBC-LAS VEGAS, INC. HBC NEW YORK, INC. HBC TEXAS, INC. KCYT-FM LICENSE CORP. KECS-FM LICENSE CORP. KESS-AM LICENSE CORP. KESS-TV LICENSE CORP. KHCK-FM LICENSE CORP. KICI-AM LICENSE CORP. KICI-FM LICENSE CORP. KLSQ-AM LICENSE CORP. KLVE-FM LICENSE CORP. KMRT-AM LICENSE CORP. KTNQ-AM LICENSE CORP. KTNQ/KLVE, INC. LA OFERTA, INC. LICENSE CORP. NO. 1 LICENSE CORP. NO. 2 MI CASA PUBLICATIONS, INC. SPANISH COAST-TO-COAST, LTD. WADO-AM LICENSE CORP. WGLI-AM LICENSE CORP. WLXX-AM LICENSE CORP. WPAT-AM LICENSE CORP. WQBA-AM LICENSE CORP. WQBA-FM LICENSE CORP. WADO RADIO, INC. TC TELEVISION, INC. TICHENOR LICENSE CORPORATION TMS ASSETS CALIFORNIA, INC. TMS LICENSE CALIFORNIA, INC. By: /s/ Jeffrey T. Hinson ------------------------------- Title: Senior Vice President -4- SUBSIDIARY GUARANTORS (continued) --------------------------------- HBC HOUSTON LICENSE CORP. HBC HOUSTON, INC. HBC SAN DIEGO LICENSE CORP. HBC SAN DIEGO, INC. TICHENOR MEDIA SYSTEM, INC. HEFTEL GP TEXAS, INC. HBC TOWER COMPANY, INC. MOMENTUM RESEARCH, INC. HBC PHOENIX, INC. HBC NETWORK, INC. By: /s/ Jeffrey T. Hinson -------------------------------- Title: Senior Vice President LENDERS ------- THE CHASE MANHATTAN BANK for itself, as Administrative Agent, and as Issuing Bank By: /s/ Tracey Navin Ewing ------------------------------- Title: Vice President BANK OF MONTREAL By: /s/ Ola Anderssen -------------------------- Title: Director THE BANK OF NOVA SCOTIA By: /s/ P. A. Weissenberger ------------------------------- Title: Authorized Signatory UNION BANK OF CALIFORNIA, N.A. By: /s/ Jenny Dongo ----------------------------- Title: Assistant Vice President CIBC, INC. By: /s/ Harold Birk -------------------------------------- Title: Executive Director CIBC World Markets Corp. as Agent FLEET BANK, N.A. By: /s/ Tanya M. Crossley ------------------------------- Title: Vice President TORONTO DOMINION (TEXAS), INC. By: /s/ Carol Brandt ---------------------------- Title: Vice President ABN AMRO BANK N.V. By: /s/ Eric R. Hollingsworth ------------------------------------ Title: Vice President By: /s/ Diego Puiggari ------------------------------------ Title: Group Vice President CREDIT AGRICOLE INDOSUEZ By: /s/ Craig Welch --------------------------------- Title: First Vice President By: /s/ Michael G. Haggarty --------------------------------- Title: Vice President THE BANK OF NEW YORK By: /s/ John R. Ciulla -------------------------------- Title: Senior Vice President SUNTRUST BANK, CENTRAL FLORIDA, N.A. By: /s/ David J. Edge -------------------------------- Title: Vice President MELLON BANK, N.A. By: /s/ Jennifer Livengood --------------------------------- Title: Officer BANK OF HAWAII By: /s/ Bernadine M. Havertine ------------------------------------- Title: Assistant Vice President MICHIGAN NATIONAL BANK By: /s/ Draga B. Palincas ------------------------------------- Title: Relationship Manager EX-10.22 3 EXHIBIT 10.22 EXHIBIT 10.22 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made as of March 4, 2000 among the company or companies designated as Seller on the signature page hereto (collectively, "Seller") and the company or companies designated as Buyer on the signature page hereto (collectively, "Buyer"). RECITALS A. Seller owns and operates the following radio broadcast stations (collectively, the "Stations," and each individually a "Station") pursuant to certain authorizations issued by the Federal Communications Commission (the "FCC"): KEYI-FM, San Marcos, Texas KXPK-FM, Evergreen, Colorado KKFR(FM), Glendale, Arizona B. Subject to the terms and conditions set forth herein, Buyer desires to acquire the Station Assets (defined below). C. Clear Channel Communications, Inc. (Clear Channel Broadcasting, Inc.'s and Clear Channel Broadcasting Licenses, Inc.'s parent), CCU Merger Sub, Inc. and AMFM Inc. are parties to an Agreement and Plan of Merger dated October 2, 1999 (the "AMFM Agreement"). AGREEMENT NOW, THEREFORE, taking the foregoing into account, and in consideration of the mutual covenants and agreements set forth herein, the parties, intending to be legally bound, hereby agree as follows: ARTICLE 1: PURCHASE OF ASSETS 0.1. STATION ASSETS. On the terms and subject to the conditions hereof, on the Closing Date (defined below), Seller shall sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase and acquire from Seller, all of the right, title and interest of Seller in and to all of the assets, properties, interests and rights of Seller of whatsoever kind and nature, real and personal, tangible and intangible, which are used exclusively in the operation of the Stations AND specifically described in this Section 1.1, but excluding the Excluded Assets as hereafter defined (the "Station Assets"): (1) all licenses, permits and other authorizations which are issued to Seller by the FCC with respect to the Stations (the "FCC Licenses") AND described on SCHEDULE 1.1(a), including any renewals or modifications thereof between the date hereof and Closing; (2) all equipment, electrical devices, antennae, cables, tools, hardware, office furniture and fixtures, office materials and supplies, inventory, motor vehicles, spare parts and other tangible personal property of every kind and description which are used exclusively in the operation of the Stations AND listed on SCHEDULE 1.1(b), except any retirements or dispositions thereof made between the date hereof and Closing in the ordinary course of business and consistent with past practices of Seller (the "Tangible Personal Property"); (3) all Time Sales Agreements and Trade Agreements (both defined in Section 2.1), Real Property Leases (defined in Section 7.7), and other contracts, agreements, and leases which are used in the operation of the Stations AND listed on SCHEDULE 1.1(c), together with all contracts, agreements, and leases made between the date hereof and Closing in the ordinary course of business that are used in the operation of the Stations (the "Station Contracts"); (4) all of Seller's rights in and to the Stations' call letters and Seller's rights in and to the trademarks, trade names, service marks, franchises, copyrights, computer software, programs and programming material, jingles, slogans, logos, and other intangible property which are used exclusively in the operation of the Stations AND listed on SCHEDULE 1.1(d) (the "Intangible Property"); (5) Seller's rights in and to all the files, documents, records, and books of account (or copies thereof) relating exclusively to the operation of the Stations, including the Stations' local public files, programming information and studies, blueprints, technical information and engineering data, and logs, but excluding records relating to Excluded Assets (defined below); and (6) any real property which is used exclusively in the operation of the Stations (including any of Seller's appurtenant easements and improvements located thereon) AND described on SCHEDULE 1.1(f) (the "Real Property"). The Station Assets shall be transferred to Buyer free and clear of liens, claims and encumbrances ("Liens") except for (i) Assumed Obligations (defined in Section 2.1), (ii) liens for taxes not yet due and payable and for which Buyer receives a credit pursuant to Section 3.3, (iii) such liens, easements, rights of way, building and use restrictions, exceptions, reservations and limitations that do not in any material respect detract from the value of the property subject thereto or impair the use thereof in the ordinary course of the business of the Stations, and (iv) any items listed on SCHEDULE 1.1(b) (collectively, "Permitted Liens"). 1.2. EXCLUDED ASSETS. Notwithstanding anything to the contrary contained herein, the Station Assets shall not include the following assets along with all rights, title and interest therein (the "Excluded Assets"): (1) all cash and cash equivalents of Seller, including without limitation certificates of deposit, commercial paper, treasury bills, marketable securities, asset or money market accounts and all such similar accounts or investments; (2) all accounts receivable or notes receivable arising in the operation of the Stations prior to Closing; (3) all tangible and intangible personal property of Seller disposed of or consumed in the ordinary course of business of Seller between the date of this Agreement and Closing; (4) all Station Contracts that terminate or expire prior to Closing in the ordinary course of business of Seller; (5) Seller's name, corporate minute books, charter documents, corporate stock record books and such other books and records as pertain to the organization, existence or share capitalization of Seller, duplicate copies of the records of the Stations, and all records not relating exclusively to the operation of the Stations; (6) contracts of insurance, and all insurance proceeds or claims made thereunder; (7) except as provided in Section 10.4, all pension, profit sharing or cash or deferred (Section 401(k)) plans and trusts and the assets thereof and any other employee benefit plan or arrangement and the assets thereof, if any, maintained by Seller; and (8) all Seller's FM towers and FM tower sites, all rights, properties and assets described on SCHEDULE 1.2(h), and all rights, properties and assets not specifically described in Section 1.1. 1.3. LEASE AGREEMENTS. At Closing, Buyer and Seller shall enter into the lease agreements described on SCHEDULE 1.2(h) pursuant to lease in the form of EXHIBIT A attached hereto. ARTICLE 2: ASSUMPTION OF OBLIGATIONS 2.1. ASSUMED OBLIGATIONS. On the Closing Date, Buyer shall assume the obligations of Seller (the "Assumed Obligations") arising after Closing under the Station Contracts, including without limitation all agreements for the sale of advertising time on the Stations for cash in the ordinary course of business ("Time Sales Agreements") and all agreements for the sale of advertising time on the Stations for non-cash consideration ("Trade Agreements"). 2.2. RETAINED OBLIGATIONS. Buyer does not assume or agree to discharge or perform and will not be deemed by reason of the execution and delivery of this Agreement or any agreement, instrument or document delivered pursuant to or in connection with this Agreement or otherwise by reason of the consummation of the transactions contemplated hereby, to have assumed or to have agreed to discharge or perform, any liabilities, obligations or commitments of Seller of any nature whatsoever whether accrued, absolute, contingent or otherwise and whether or not disclosed to Buyer, other than the Assumed Obligations (the "Retained Obligations"). ARTICLE 3: PURCHASE PRICE 3.1. PURCHASE PRICE. In consideration for the sale of the Station Assets to Buyer, in addition to the assumption of the Assumed Obligations, Buyer shall at Closing (defined below) deliver to Seller by wire transfer of immediately available funds the sum of (i) ONE HUNDRED TWENTY SEVEN MILLION DOLLARS ($127,000,000), subject to adjustment pursuant to Sections 3.3, plus (ii) the Reserve Adjustment (as defined in Section 3.5 below) (the "Purchase Price"). 3.2. DEPOSIT. Within three (3) business days from the date of this Agreement with no Cure Period as defined below, Buyer shall deposit an amount in cash (which cash amount may thereafter be exchanged with an irrevocable letter of credit from a nationally recognized commercial bank in such face amount, such letter of credit subject to prior approval by Seller) equal to 25% of the Purchase Price (the "Deposit") with NationsBank/Bank of America (the "Escrow Agent") pursuant to the Escrow Agreement (the "Escrow Agreement") of even date herewith among Buyer, Seller and the Escrow Agent. At Closing, the Deposit shall be applied to the Purchase Price and any interest accrued thereon shall be disbursed to Buyer. If this Agreement is terminated by Seller due to Buyer's failure to consummate the Closing on the Closing Date or if this Agreement is otherwise terminated by Seller pursuant to Section 16.1(c), the Deposit and any interest accrued thereon shall be disbursed to Seller. If this Agreement is terminated for any other reason, the Deposit and any interest accrued thereon shall be disbursed to Buyer. 3.3. PRORATIONS AND ADJUSTMENTS. Except as otherwise provided herein, all deposits, reserves and prepaid and deferred income and expenses relating to the Station Assets or the Assumed Obligations and arising from the conduct of the business and operations of the Stations shall be prorated between Buyer and Seller in accordance with generally accepted accounting principles as of 11:59 p.m. on the date immediately preceding the Closing Date. Such prorations shall include, without limitation, all ad valorem, real estate and other property taxes (but excluding taxes arising by reason of the transfer of the Station Assets as contemplated hereby which shall be paid as set forth in Section 13.1), business and license fees, music and other license fees (including any retroactive adjustments thereof), utility expenses, amounts due or to become due under Station Contracts, rents, lease payments and similar prepaid and deferred items. Real estate taxes shall be apportioned on the basis of taxes assessed for the preceding year, with a reapportionment, if any, as soon as the new tax rate and valuation can be ascertained. Except as otherwise provided herein, the prorations and adjustments contemplated by this Section 3.3, to the extent practicable, shall be made on the Closing Date. As to those prorations and adjustments not capable of being ascertained on the Closing Date, an adjustment and proration shall be made within ninety (90) calendar days of the Closing Date. In the event of any disputes between the parties as to such adjustments, the amounts not in dispute shall nonetheless be paid at the time provided herein and such disputes shall be determined by an independent certified public accountant mutually acceptable to the parties, and the fees and expenses of such accountant shall be paid one-half by Seller and one-half by Buyer. 3.4. ALLOCATION. The Purchase Price shall be allocated among the Station Assets in a manner as mutually agreed between the parties based upon an appraisal prepared by Bond & Pecaro (whose fees shall be paid one-half by Seller and one-half by Buyer). Seller and Buyer agree to use the allocations determined pursuant to this Section 3.4 for all tax purposes, including without limitation, those matters subject to Section 1060 of the Internal Revenue Code of 1986, as amended. 3.5. RESERVE. At the Closing, Seller shall set aside and pay to Buyer a portion of the Purchase Price (the "Reserve") equal to the sum of (i) One Million Dollars ($1,000,000), plus (ii) the Reserve Adjustment. Buyer shall be entitled to use the Reserve in its sole discretion in order to satisfy certain obligations assumed under the Time Sales Agreements, Trade Agreements and Station Contracts. The Buyer shall be entitled to retain any amounts of the Reserve which are not so used. As used herein, the "Reserve Adjustment" shall be the amount in excess of $1,000,000 which Buyer reasonably estimates to be the cost of terminating the Time Sales Agreements, Trade Agreements and Station Contracts which Buyer would not otherwise assume but for the convenience of Seller hereunder. Buyer will provide Seller with written notification of its preliminary calculation of the amount of the Reserve Adjustment at least three (3) days prior to Closing and will pay such amount to Seller as part of the Purchase Price. Buyer will complete its calculation of the Reserve Adjustment within ninety (90) days after the Closing. To the extent such final calculation of the Reserve Adjustment is higher than the preliminary calculation, Buyer will remit such excess to Seller as additional Purchase Price, and Seller will set aside and pay such amount to Buyer as additional Reserve. ARTICLE 4: CLOSING 4.1. CLOSING. The consummation of the sale and purchase of the Station Assets (the "Closing") shall occur on a date (the "Closing Date") and at a time and place designated solely by Seller after FCC Consent (defined below), subject to satisfaction or waiver of the conditions to Closing contained herein (other than those to be satisfied at Closing). Seller shall provide Buyer with notice of the Closing Date at least three (3) business days prior to Closing, however, Seller reserves the right to extend the Closing Date without penalty. If requested by Seller, prior to Closing the parties shall hold a pre-closing conference at a time and place designated by Seller, at which the parties shall provide (for review only) all documents to be delivered at Closing under this Agreement, each duly executed but undated, and otherwise confirm their ability to timely consummate the Closing. ARTICLE 5: GOVERNMENTAL CONSENTS Closing is subject to and conditioned upon (i) prior FCC consent (the "FCC Consent") to the assignment of the FCC Licenses to Buyer, (ii) United States Department of Justice ("DOJ") prior approval (the "DOJ Consent") of the transactions contemplated hereby, including without limitation any such approval as may be necessary to enable Seller to consummate the merger under the AMFM Agreement, and (iii) expiration or termination of any applicable waiting period ("HSR Clearance") under the HSR Act (defined below). 5.1. FCC. On a date designated by Seller, Buyer and Seller shall file an application with the FCC (the "FCC Application") requesting the FCC Consent. Buyer and Seller shall diligently prosecute the FCC Application and otherwise use their best efforts to obtain the FCC Consent as soon as possible. If the FCC Consent imposes upon Buyer any condition (including without limitation any divestiture condition), Buyer shall timely comply therewith. 5.2. HSR. If not previously filed, then within five (5) business days after the execution of this Agreement, Buyer and Seller shall make any required filings with the Federal Trade Commission and the DOJ pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") with respect to the transactions contemplated hereby (including a request for early termination of the waiting period thereunder), and shall thereafter promptly respond to all requests received from such agencies for additional information or documentation. 5.3. GENERAL. Buyer and Seller shall notify each other of all documents filed with or received from any governmental agency with respect to this Agreement or the transactions contemplated hereby. Buyer and Seller shall furnish each other with such information and assistance as such the other may reasonably request in connection with their preparation of any governmental filing hereunder. If Buyer becomes aware of any fact relating to it which would prevent or delay the FCC Consent, the DOJ Consent or HSR Clearance, Buyer shall promptly notify Seller thereof and take such steps as necessary to remove such impediment, including but not limited to divesting any stations and terminating any agreements to acquire or program or market any stations. ARTICLE 6: REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby makes the following representations and warranties to Seller: 6.1. ORGANIZATION AND STANDING. Buyer is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, and is qualified to do business in each jurisdiction in which the Station Assets are located. Buyer has the requisite power and authority to execute and deliver this Agreement and all of the other agreements and instruments to be executed and delivered by Buyer pursuant hereto (collectively, the "Buyer Ancillary Agreements"), to consummate the transactions contemplated hereby and thereby and to comply with the terms, conditions and provisions hereof and thereof. 6.2. AUTHORIZATION. The execution, delivery and performance of this Agreement and the Buyer Ancillary Agreements by Buyer have been duly authorized and approved by all necessary action of Buyer and do not require any further authorization or consent of Buyer. This Agreement is, and each Buyer Ancillary Agreement when executed and delivered by Buyer and the other parties thereto will be, a legal, valid and binding agreement of Buyer enforceable in accordance with its respective terms, except in each case as such enforceability may be limited by bankruptcy, moratorium, insolvency, reorganization or other similar laws affecting or limiting the enforcement of creditors' rights generally and except as such enforceability is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 6.3. NO CONFLICTS Neither the execution and delivery by Buyer of this Agreement and the Buyer Ancillary Agreements or the consummation by Buyer of any of the transactions contemplated hereby or thereby nor compliance by Buyer with or fulfillment by Buyer of the terms, conditions and provisions hereof or thereof will: (i) conflict with any organizational documents of Buyer or any law, judgment, order or decree to which Buyer is subject; or (ii) require the approval, consent, authorization or act of, or the making by Buyer of any declaration, filing or registration with, any third party or any foreign, federal, state or local court, governmental or regulatory authority or body, except the FCC Consent and DOJ Consent, and, if applicable, HSR Clearance. 6.4. QUALIFICATION. Buyer is legally, financially and otherwise qualified to be the licensee of, acquire, own and operate the Stations under the Communications Act of 1934, as amended (the "Communications Act") and the rules, regulations and policies of the FCC. There are no facts that would, under existing law and the existing rules, regulations, policies and procedures of the FCC, disqualify Buyer as an assignee of the FCC Licenses or as the owner and operator of the Stations. No waiver of any FCC rule or policy is necessary for the FCC Consent to be obtained. There is no action, suit or proceeding pending or threatened against Buyer which questions the legality or propriety of the transactions contemplated by this Agreement or could materially adversely affect Buyer's ability to perform its obligations hereunder. Buyer has and will have available on the Closing Date sufficient funds to enable it to consummate the transactions contemplated hereby. 6.5. NO FINDER. Other than Star Media (the fees and expenses of which are to be paid by Buyer), no broker, finder or other person is entitled to a commission, brokerage fee or other similar payment in connection with this Agreement or the transactions contemplated hereby as a result of any agreement or action of Buyer or any party acting on Buyer's behalf. ARTICLE 7: REPRESENTATIONS AND WARRANTIES OF SELLER Seller makes the following representations and warranties to Buyer: 7.1. ORGANIZATION. Each Seller is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, and is qualified to do business in each jurisdiction in which the Station Assets are located. Seller has the requisite power and authority to execute and deliver this Agreement and all of the other agreements and instruments to be executed and delivered by Seller pursuant hereto (collectively, the "Seller Ancillary Agreements"), to consummate the transactions contemplated hereby and thereby and to comply with the terms, conditions and provisions hereof and thereof. 7.2. AUTHORIZATION. The execution, delivery and performance of this Agreement and the Seller Ancillary Agreements by Seller have been duly authorized and approved by all necessary action of Seller and do not require any further authorization or consent of Seller. This Agreement is, and each Seller Ancillary Agreement when executed and delivered by Seller and the other parties thereto will be, a legal, valid and binding agreement of Seller enforceable in accordance with its respective terms, except in each case as such enforceability may be limited by bankruptcy, moratorium, insolvency, reorganization or other similar laws affecting or limiting the enforcement of creditors' rights generally and except as such enforceability is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 7.3. NO CONFLICTS. Neither the execution and delivery by Seller of this Agreement and the Seller Ancillary Agreements or the consummation by Seller of any of the transactions contemplated hereby or thereby nor compliance by Seller with or fulfillment by Seller of the terms, conditions and provisions hereof or thereof will: (i) conflict with any organizational documents of Seller or any law, judgment, order, or decree to which Seller is subject or, except as set forth on SCHEDULE 1.1(c), any Station Contract; or (ii) require the approval, consent, authorization or act of, or the making by Seller of any declaration, filing or registration with, any third party or any foreign, federal, state or local court, governmental or regulatory authority or body, except the FCC Consent and DOJ Consent and, if applicable, HSR Clearance. 7.4. FCC LICENSES. Seller (or one of the companies comprising Seller) is the holder of the FCC Licenses described on SCHEDULE 1.1(a). The FCC Licenses are in full force and effect and have not been revoked, suspended, canceled, rescinded or terminated and have not expired. There is not pending any action by or before the FCC to revoke, suspend, cancel, rescind or materially adversely modify any of the FCC Licenses (other than proceedings to amend FCC rules of general applicability), and there is not now issued or outstanding, by or before the FCC, any order to show cause, notice of violation, notice of apparent liability, or notice of forfeiture against Seller with respect to the Stations. The Stations are operating in compliance in all material respects with the FCC Licenses, the Communications Act, and the rules, regulations and policies of the FCC. 7.5. TAXES. Seller has, in respect of the Stations' business, filed all foreign, federal, state, county and local income, excise, property, sales, use, franchise and other tax returns and reports which are required to have been filed by it under applicable law and has paid all taxes which have become due pursuant to such returns or pursuant to any assessments which have become payable. 7.6. PERSONAL PROPERTY. SCHEDULE 1.1(b) contains a list of all material items of Tangible Personal Property included in the Station Assets. Seller has title to the Tangible Personal Property free and clear of Liens other than Permitted Liens. The Tangible Personal Property is in good condition and working order. 7.7. REAL PROPERTY. SCHEDULE 1.1(f) contains a description of all Real Property included in the Station Assets. Seller has fee simple title to the owned Real Property ("Owned Real Property") free and clear of Liens other than Permitted Liens. SCHEDULE 1.1(f) includes a description of each lease of Real Property or similar agreement included in the Station Assets (the "Real Property Leases"). The Owned Real Property includes, and the Real Property Leases provide, access to the Stations' facilities. To Seller's knowledge, the Real Property is not subject to any suit for condemnation or other taking by any public authority. 7.8. CONTRACTS. Each of the Station Contracts (including without limitation each of the Real Property Leases) is in effect and is binding upon Seller and, to Seller's knowledge, the other parties thereto (subject to bankruptcy, insolvency, reorganization or other similar laws relating to or affecting the enforcement of creditors' rights generally). Seller has performed its obligations under each of the Station Contracts in all material respects, and is not in material default thereunder, and to Seller's knowledge, no other party to any of the Station Contracts is in default thereunder in any material respect. 7.9. ENVIRONMENTAL. Except as set forth in any environmental report delivered by Seller to Buyer prior to the date of this Agreement and except as set forth on SCHEDULE 1.1(f), to Seller's knowledge, no hazardous or toxic substance or waste regulated under any applicable environmental, health or safety law has been generated, stored, transported or released on, in, from or to the Real Property included in the Station Assets. Except as set forth in any environmental report delivered by Seller to Buyer prior to the date of this Agreement and except as set forth on SCHEDULE 1.1(f), to Seller's knowledge, Seller has complied in all material respects with all environmental, health and safety laws applicable to the Stations. 7.10. INTANGIBLE PROPERTY. SCHEDULE 1.1(d) contains a description of the material Intangible Property included in the Station Assets. Except as set forth on SCHEDULE 1.1(d), Seller has received no notice of any claim that its use of the Intangible Property infringes upon any third party rights. Except as set forth on SCHEDULE 1.1(d), Seller owns or has the right to use the Intangible Property free and clear of Liens other than Permitted Liens. 7.11. COMPLIANCE WITH LAW. Seller has complied in all material respects with all laws, regulations, rules, writs, injunctions, ordinances, franchises, decrees or orders of any court or of any foreign, federal, state, municipal or other governmental authority which are applicable to the operation of the Stations. There is no action, suit or proceeding pending or threatened against Seller in respect of the Stations that will subject Buyer to liability or which questions the legality or propriety of the transactions contemplated by this Agreement. To Seller's knowledge, there are no governmental claims or investigations pending or threatened against Seller in respect of the Stations (except those affecting the industry generally). 7.12. NO FINDER. Other than Star Media (the fees and expenses of which are to be paid by Buyer), no broker, finder or other person is entitled to a commission, brokerage fee or other similar payment in connection with this Agreement or the transactions contemplated hereby as a result of any agreement or action of Seller or any party acting on Seller's behalf. 7.13. FINANCIAL STATEMENTS. Seller has delivered to Buyer copies of the unaudited results of operations of the Stations for the nine months ended September 30, 1999, prepared in accordance with the books and records of the Stations. ARTICLE 8: ACCOUNTS RECEIVABLE 8.1. ACCOUNTS RECEIVABLE. All accounts receivable arising prior to the Closing Date in connection with the operation of the Stations, including but not limited to accounts receivable for advertising revenues for programs and announcements performed prior to the Closing Date and other broadcast revenues for services performed prior to the Closing Date, shall remain the property of Seller (the "Accounts Receivable") and Buyer shall not acquire any right or interest therein. To the extent Buyer receives any payment in respect of the Accounts Receivable, it shall promptly remit the same to Seller. ARTICLE 9: COVENANTS OF SELLER 9.1. SELLER'S COVENANTS. Seller covenants and agrees with respect to the Stations that, between the date hereof and Closing, except as permitted by this Agreement or with the prior written consent of Buyer, which shall not be unreasonably withheld, Seller shall: (1) operate the Stations in the ordinary course of business consistent with past practice and in all material respects in accordance with FCC rules and regulations and with all other applicable laws, regulations, rules and orders; (2) not, other than in the ordinary course of business in accordance with past practice, sell, lease or dispose of or agree to sell, lease or dispose of any of the Station Assets, or create, assume or permit to exist any Liens upon the Station Assets, except for Permitted Liens; , (3) furnish Buyer with such information relating to the Station Assets as Buyer may reasonably request, at Buyer's expense and provided such request does not interfere unreasonably with the business of the Stations; (4) not enter into new Station Contracts with a term greater than one year and an aggregate value greater than $25,000 which cannot be canceled with ninety (90) days prior written notice, without providing prior written notice to Buyer, or enter into Trade Agreements which in the aggregate exceed related barter assets; (5) use good faith efforts to satisfy, prior to Closing, all of the obligations of the Stations under the Trade Agreement; and (6) upon the written request of Buyer, promptly send notices of non-renewal or early termination in respect of any Station Contract in which such notice would not constitute a breach of such Station Contract. 9.2. FINANCIAL STATEMENTS. Seller shall cooperate with Buyer in order to enable Buyer to have its independent auditors prepare financial statements (at Buyer's expense) for the Stations as may be required of Buyer pursuant to federal securities laws. ARTICLE 10: JOINT COVENANTS Buyer and Seller hereby covenant and agree that between the date hereof and Closing: 10.1. COOPERATION. Subject to express limitations contained elsewhere herein, each party (i) shall cooperate fully with one another in taking any reasonable actions (including without limitation, reasonable actions to obtain the required consent of any governmental instrumentality or any third party) necessary or helpful to accomplish the transactions contemplated by this Agreement, including but not limited to the prompt satisfaction of any condition to Closing set forth herein, and (ii) shall not take any action that conflicts with its obligations hereunder or that causes its representations and warranties to become untrue in any material respect. 10.2. CONTROL OF STATIONS. Buyer shall not, directly or indirectly, control, supervise or direct the operations of the Stations prior to Closing. Such operations, including complete control and supervision of all Station programs, employees and policies, shall be the sole responsibility of Seller. 10.3. CONSENTS TO ASSIGNMENT. The parties shall use commercially reasonable efforts to obtain any third party consents necessary for the assignment of any Station Contract (which shall not require any payment to any such third party). To the extent that any Station Contract may not be assigned without the consent of any third party, and such consent is not obtained prior to Closing, this Agreement and any assignment executed pursuant hereto shall not constitute an assignment thereof, but to the extent permitted by law shall constitute an equitable assignment by Seller and assumption by Buyer of Seller's rights and obligations under the applicable Station Contract, with Seller making available to Buyer the benefits thereof and Buyer performing the obligations thereunder on Seller's behalf; provided, however, that Seller shall indemnify Buyer from and against all costs, expenses and damages incurred by Buyer as a result of Seller's failure to have obtained a consent to assignment with respect to any of the leases for the main transmitter sites listed on SCHEDULE 1.1(f) from which the Stations' signals are broadcast. Seller shall be released from all indemnification obligations with respect to Seller's failure to have obtained a consent to assignment with respect to any of the leases for the main transmitter sites from which the Stations' signals are broadcast six (6) months after the Closing Date, except to the extent that written notice of such indemnification claim is given by Buyer to Seller within the six month time period. 10.4. EMPLOYEE MATTERS. (1) Prior to Closing, Seller shall deliver to Buyer a list of substantially all the employees who work for KKFR(FM) and a list of employees of who work for KEYI-FM and KXPK-FM that Seller does not intend to retain after Closing. Buyer may interview and elect to hire such listed employees, but not any other employees of Seller. Buyer is obligated to hire only those employees that are under employment contracts (and assume Seller's obligations and liabilities under such employment contracts) which are included in the Station Contracts. Certain of the employees under employment contracts will be terminated as of the Closing by Buyer, and Buyer will be responsible for all amounts owed to such employees in respect of periods on and after the Closing. With respect to employees hired by Buyer ("Transferred Employees"), to the extent permitted by law, Seller shall provide Buyer access to its personnel records and such other information as Buyer may reasonably request prior to Closing. With respect to such hired employees, Seller shall be responsible for the payment of all compensation payable by it with respect to periods prior to Closing and thereafter Buyer shall be responsible for all such obligations payable by it under the terms of applicable employee benefits plans. Buyer shall cause all employees it hires to be eligible to participate in its "employee welfare benefit plans" and "employee pension benefit plans" (as defined in Section 3(1) and 3(2) of ERISA, respectively) in which similarly situated employees are generally eligible to participate; provided, however, that all such employees and their spouses and dependents, who are currently covered by Seller's plan(s), shall be eligible for coverage immediately after Closing (and shall not be excluded from coverage on account of any pre-existing condition unless such persons are excluded from Seller's plan on account of any pre-existing condition, such persons to receive credit towards any pre-existing condition waiting period under Buyer's plan(s) to the extend such credit was earned towards any pre-existing waiting period under Seller's plan(s)) to the extent provided under such plans. For purposes of any length of service requirements, waiting periods, vesting periods or differential benefits based on length of service in any such plan for which such employees may be eligible after Closing, Buyer shall ensure that service with Seller shall be deemed to have been service with the Buyer. In addition, Buyer shall ensure that each such employee receives credit under any welfare benefit plan of Buyer for any deductibles and co-payments paid by such employees and dependents for the current plan year under a plan maintained by Seller, and at Buyer's request, Seller will produce a report of such credits as soon as administratively possible. Notwithstanding any other provision contained herein, Buyer shall grant credit to each such employee for all unused sick leave accrued as of Closing as an employee of Seller. Buyer shall assume and discharge Seller's liabilities for the payment of all unused vacation leave accrued by such employees as of Closing. (2) At such time as the Seller can represent to the Buyer as to the tax-qualified status of the 401(k) savings plan(s) in which Transferred Employees retain account balances with the Seller or its subsidiaries (the "Saving Plan(s)") and furnish to Buyer a favorable Internal Revenue Service determination letter as to the tax-qualified status of such Savings Plan(s) under Section 401(a) of the Code (or an opinion of counsel that the form of the Savings Plan(s) is so qualified), Buyer and Seller shall enter into a 401(k) plan asset transfer agreement pursuant to which Buyer shall establish a defined contribution plan (or cover Transferred Employees under an existing defined contribution plan sponsored by Buyer) for the benefit of Transferred Employees who were participants in the Savings Plan(s). Such Transferred Employees are referred to hereinafter as the "Savings Plan Employees." (c) Following execution of the agreement contemplated in clause (b) above, Seller shall cause to be transferred from the Savings Plan(s) to the plan covering the Savings Plan Employees (the "Transferee Savings Plan") the liability for the account balances of the Savings Plan Employees (including outstanding loan balances of Savings Plan Employees), together with cash, cash equivalents or other mutually acceptable property, the value of which on such transfer date is equal to such liability, and Buyer shall cause the Transferee Savings Plan to accept such transfer, all in accordance with the rules and regulations under Section 414(l) of the Code. (d) Pending completion of the transfers described in this Section, Seller and Buyer shall make arrangements for any distributions, if any, to the Savings Plan Employees from the Savings Plan(s). Seller and Buyer shall provide each other with access to information reasonably necessary in order to carry out the provisions of this paragraph. In addition, until the asset transfer is effectuated, Buyer shall cooperate with the reasonable requests of Seller to continue to withhold from the pay checks of Transferred Employees' who have outstanding loan balances in the Savings Plan(s) and Buyer shall remit such withheld amounts to the Seller in a timely fashion such that the outstanding loans do not go into default. 10.5. 1031 EXCHANGE. At or prior to Closing, Seller may assign its rights under this Agreement (in whole or in part) to a qualified intermediary (as defined in Treasury regulation section 1.1031(k)-1(g)(4)) or similar entity or arrangement ("Qualified Intermediary"). Upon any such assignment, Seller shall promptly give written notice thereof to Buyer, and Buyer shall cooperate with the reasonable requests of Seller and any Qualified Intermediary in connection therewith. Without limiting the generality of the foregoing, if Seller gives notice of such assignment, Buyer shall (i) promptly provide Seller with written acknowledgment of such notice and (ii) at Closing, pay the Purchase Price (or any portion thereof designated by the Qualified Intermediary) to or on behalf of the Qualified Intermediary (which payment shall, to the extent thereof, satisfy the obligations of Buyer to make such payment hereunder). Seller's assignment to a Qualified Intermediary will not relieve Seller of any of its duties or obligations herein. Except for the obligations of Buyer set forth in this Section, Buyer shall not have any liability or obligation to Seller for the failure of the contemplated exchange to qualify as a like-kind exchange under Section 1031 of the Internal Revenue Code unless such failure is the result of the material breach or default by Buyer under this Agreement. 10.6. TRUST. Notwithstanding anything in this Agreement to the contrary, Seller may at it option assign this Agreement (in whole or part) and assign and transfer the Station Assets (in whole or in part) to a trustee to hold and operate pursuant to a trust agreement, provided such trustee assumes Seller's duties and obligations hereunder with respect to the Station Assets held in such trust. 10.7. KXTA-AM TOWER LEASE. At or prior to Closing, Buyer shall amend the KXTA-AM, Los Angeles, California License Agreement between KTNQ/KLVE, Inc. and Citicasters Co. dated December 10, 1997, pursuant to which Buyer is the landlord and Seller is the tenant in the form attached hereto ("KXTA Lease Amendment"). ARTICLE 11: CONDITIONS OF CLOSING BY BUYER The obligations of Buyer hereunder are, at its option, subject to satisfaction, at or prior to Closing, of each of the following conditions: 11.1. REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and warranties of Seller made in this Agreement shall be true and correct in all material respects as of the Closing Date except for changes permitted or contemplated by the terms of this Agreement, and the covenants and agreements to be complied with and performed by Seller at or prior to Closing shall have been complied with or performed in all material respects. Buyer shall have received a certificate dated as of the Closing Date from Seller, executed by an authorized officer of Seller to the effect that the conditions set forth in this Section have been satisfied. 11.2. GOVERNMENTAL CONSENTS. The FCC Consent and DOJ Consent, and, if applicable, HSR Clearance, shall have been obtained, and no court or governmental order prohibiting Closing shall be in effect. ARTICLE 12: CONDITIONS OF CLOSING BY SELLER The obligations of Seller hereunder are, at its option, subject to satisfaction, at or prior to Closing, of each of the following conditions: 12.1. REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and warranties of Buyer made in this Agreement shall be true and correct in all material respects as of the Closing Date except for changes permitted or contemplated by the terms of this Agreement, and the covenants and agreements to be complied with and performed by Buyer at or prior to Closing shall have been complied with or performed in all material respects. Seller shall have received a certificate dated as of the Closing Date from Buyer, executed by an authorized officer of Buyer, to the effect that the conditions set forth in this Section have been satisfied. 12.2. GOVERNMENTAL CONSENTS. The FCC Consent and DOJ Consent, and, if applicable, HSR Clearance, shall have been obtained, and no court or governmental order prohibiting Closing shall be in effect. 12.3. AMFM CLOSING. The closing under the AMFM Agreement shall have been consummated. ARTICLE 13: EXPENSES 13.1. EXPENSES. Each party shall be solely responsible for all costs and expenses incurred by it in connection with the negotiation, preparation and performance of and compliance with the terms of this Agreement, except that (i) all recordation, transfer and documentary taxes, fees and charges, and any excise, sales or use taxes, applicable to the transfer of the Station Assets shall be paid by Buyer, (ii) all FCC filing fees shall be paid equally by Buyer and Seller, and (iii) all HSR Act filing fees and expenses shall be paid by Buyer. ARTICLE 14: DOCUMENTS TO BE DELIVERED AT CLOSING 14.1. SELLER'S DOCUMENTS. At Closing, Seller shall deliver or cause to be delivered to Buyer: (1) certified copies of resolutions authorizing its execution, delivery and performance of this Agreement, including the consummation of the transactions contemplated hereby; (2) the certificate described in Section 11.1; and (3) such bills of sale, assignments, special warranty deeds, documents of title and other instruments of conveyance, assignment and transfer as may be necessary to convey, transfer and assign the Station Assets to Buyer, free and clear of Liens, except for Permitted Liens. 14.2. BUYER'S DOCUMENTS. At Closing, Buyer shall deliver or cause to be delivered to Seller: (1) the certified copies of resolutions authorizing its execution, delivery and performance of this Agreement, including the consummation of the transactions contemplated hereby; (2) the certificate described in Section 12.1; (3) such documents and instruments of assumption as may be necessary to assume the Assumed Obligations, and the Purchase Price in accordance with Section 3.1 hereof; and, (4) the KXTA Lease Amendment described in Section 10.7. ARTICLE 15: SURVIVAL; INDEMNIFICATION. 15.1. SURVIVAL. The covenants, agreements, representations and warranties in this Agreement shall survive Closing for a period of six (6) months from the Closing Date whereupon they shall expire and be of no further force or effect, except those under (i) this Article 15 that relate to Damages (defined below) for which written notice is given by the indemnified party to the indemnifying party prior to the expiration, which shall survive until resolved and (ii) the following provisions (the "Expense Provisions"): Sections 2.1 (Assumed Obligations), 3.3 (Adjustments), 3.4 (Allocation), 8.1 (Accounts Receivable) and 13.1 (Expenses), and indemnification obligations with respect to such provisions, which shall survive until performed. 15.2. INDEMNIFICATION. (1) From and after the Closing, Seller shall defend, indemnify and hold harmless Buyer from and against any and all losses, costs, damages, liabilities and expenses, including reasonable attorneys' fees and expenses ("Damages") incurred by Buyer arising out of or resulting from: (i) any breach or default by Seller under this Agreement; (ii) the Retained Obligations; or (iii) the business or operation of the Stations before Closing; provided, however, that after Closing, except for Expenses Provisions (which shall not be subject to such limitations), (i) Seller shall have no liability to Buyer hereunder until, and only to the extent that, Buyer's aggregate Damages exceed $500,000 and (ii) the maximum liability of Seller hereunder shall be $5,000,000. (2) From and after the Closing, Buyer shall defend, indemnify and hold harmless Seller from and against any and all Damages incurred by Seller arising out of or resulting from: (i) any breach or default by Buyer under this Agreement; (ii) the Assumed Obligations; or (iii) the business or operation of the Stations after Closing; provided however, that after Closing, except for the Expense Provisions (which shall not be subject to such limitations), (i) Buyer shall have no liability to Seller hereunder until, and only to the extent that, Seller's aggregate Damages exceed $500,000 and (ii) the maximum liability of Buyer hereunder shall be $5,000,000. 15.3. PROCEDURES. The indemnified party shall give prompt written notice to the indemnifying party of any demand, suit, claim or assertion of liability by third parties or other circumstances that could give rise to an indemnification obligation hereunder against the indemnifying party (a "Claim"), but a failure to give such notice or delaying such notice shall not affect the indemnified party's right to indemnification and the indemnifying party's obligation to indemnify as set forth in this Agreement, except to the extent the indemnifying party's ability to remedy, contest, defend or settle with respect to such Claim is thereby prejudiced. The obligations and liabilities of the parties with respect to any Claim shall be subject to the following additional terms and conditions: (1) The indemnifying party shall have the right to undertake, by counsel or other representatives of its own choosing, the defense or opposition to such Claim. (2) In the event that the indemnifying party shall elect not to undertake such defense or opposition, or, within twenty (20) days after written notice (which shall include sufficient description of background information explaining the basis for such Claim) of any such Claim from the indemnified party, the indemnifying party shall fail to undertake to defend or oppose, the indemnified party (upon further written notice to the indemnifying party) shall have the right to undertake the defense, opposition, compromise or settlement of such Claim, by counsel or other representatives of its own choosing, on behalf of and for the account and risk of the indemnifying party (subject to the right of the indemnifying party to assume defense of or opposition to such Claim at any time prior to settlement, compromise or final determination thereof). (3) Anything herein to the contrary notwithstanding: (i) the indemnified party shall have the right, at its own cost and expense, to participate in the defense, opposition, compromise or settlement of the Claim; (ii) the indemnifying party shall not, without the indemnified party's written consent, settle or compromise any Claim or consent to entry of any judgment which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the indemnified party of a release from all liability in respect of such Claim; and (iii) in the event that the indemnifying party undertakes defense of or opposition to any Claim, the indemnified party, by counsel or other representative of its own choosing and at its sole cost and expense, shall have the right to consult with the indemnifying party and its counsel or other representatives concerning such Claim and the indemnifying party and the indemnified party and their respective counsel or other representatives shall cooperate in good faith with respect to such Claim. (4) All claims not disputed shall be paid by the indemnifying party within thirty (30) days after receiving notice of the Claim. "Disputed Claims" shall mean claims for Damages by an indemnified party which the indemnifying party objects to in writing within thirty (30) days after receiving notice of the Claim. In the event there is a Disputed Claim with respect to any Damages, the indemnifying party shall be required to pay the indemnified party the amount of such Damages for which the indemnifying party has, pursuant to a final determination, been found liable within ten (10) days after there is a final determination with respect to such Disputed Claim. A final determination of a Disputed Claim shall be (i) a judgment of any court determining the validity of a Disputed Claim, if no appeal is pending from such judgment and if the time to appeal therefrom has elapsed; (ii) an award of any arbitration determining the validity of such disputed claim, if there is not pending any motion to set aside such award and if the time within which to move to set aside such award has elapsed; (iii) a written termination of the dispute with respect to such claim signed by the parties thereto or their attorneys; (iv) a written acknowledgment of the indemnifying party that it no longer disputes the validity of such claim; or (v) such other evidence of final determination of a disputed claim as shall be acceptable to the parties. No undertaking of defense or opposition to a Claim shall be construed as an acknowledgment by such party that it is liable to the party claiming indemnification with respect to the Claim at issue or other similar Claims. ARTICLE 16: TERMINATION 16.1. TERMINATION. This Agreement may be terminated at any time prior to Closing as follows: (1) by mutual written consent of Buyer and Seller; (2) by written notice of Buyer to Seller if Seller (i) does not satisfy the conditions or perform the obligations to be satisfied or performed by it on the Closing Date; or (ii) otherwise breaches in any material respect any of its representations or warranties or defaults in any material respect in the performance of any of its covenants or agreements herein contained and such breach or default is not cured within the Cure Period (defined below); (3) by written notice of Seller to Buyer if Buyer (i) does not satisfy the conditions or perform the obligations to be satisfied or performed by it on the Closing Date; or (ii) otherwise breaches in any material respect any of its representations or warranties or defaults in any material respect in the performance of any of its covenants or agreements herein contained and such breach or default is not cured within the Cure Period (defined below); (4) by written notice of Buyer to Seller, or by Seller to Buyer, if the FCC denies the FCC Application; (5) by written notice of Seller to Buyer if the Closing shall not have been consummated on or before the date four months after the date of this Agreement; or (6) by written notice of Seller to Buyer if the AMFM Agreement is terminated or expires. The term "Cure Period" as used herein means a period commencing the date Buyer or Seller receives from the other written notice of breach or default hereunder and continuing until the earlier of (i) thirty (30) days thereafter or (ii) the Closing Date; provided, however, that if the breach or default cannot reasonably be cured within such period but can be cured before the Closing Date, and if diligent efforts to cure promptly commence, then the Cure Period shall continue as long as such diligent efforts to cure continue, but not beyond the Closing Date. Except as set forth below, the termination of this Agreement shall not relieve any party of any liability for breach or default under this Agreement prior to the date of termination. Notwithstanding anything contained herein to the contrary, Section 13.1 shall survive any termination of this Agreement. 16.2. REMEDIES. The parties recognize that if either party refuses to consummate the Closing pursuant to the provisions of this Agreement or either party otherwise breaches or defaults such that the Closing has not occurred ("Breaching Party"), monetary damages alone will not be adequate to compensate the non-breaching party ("Non-Breaching Party") for its injury. Such Non-Breaching Party shall therefore be entitled to obtain specific performance of the terms of this Agreement in lieu of, and not in addition to, any other remedies, including but not limited to monetary damages, that may be available to it; provided however, that Seller may elect to recover liquidated damages in lieu of obtaining specific performance. If any action is brought by the Non-Breaching Party to enforce this Agreement, the Breaching Party shall waive the defense that there is an adequate remedy at law. In the event of a default by the Breaching Party which results in the filing of a lawsuit for damages, specific performance, or other remedy, the Non-Breaching Party shall be entitled to reimbursement by the Breaching Party of reasonable legal fees and expenses incurred by the Non-Breaching Party, provided that the Non-Breaching Party is successful in such lawsuit. 16.3. LIQUIDATED DAMAGES. If Seller terminates this Agreement due to Buyer's failure to consummate the Closing on the Closing Date or if this Agreement is otherwise terminated by Seller pursuant to Section 16.1(c), then the Deposit and any interest accrued thereon shall be paid to Seller, and such payment shall constitute liquidated damages. It is understood and agreed that such liquidated damages amount represents Buyer's and Seller's reasonable estimate of actual damages and does not constitute a penalty. ARTICLE 17: MISCELLANEOUS PROVISIONS 17.1. CASUALTY LOSS. In the event any loss or damage of the Station Assets exists on the Closing Date, Buyer and Seller shall consummate the Closing and Seller shall assign to Buyer the proceeds of any insurance payable to Seller on account of such damage or loss. 17.2. FURTHER ASSURANCES. After the Closing, Seller shall from time to time, at the request of and without further cost or expense to Buyer, execute and deliver such other instruments of conveyance and transfer and take such other actions as may reasonably be requested in order to more effectively consummate the transactions contemplated hereby to vest in Buyer good title to the Station Assets, and Buyer shall from time to time, at the request of and without further cost or expense to Seller, execute and deliver such other instruments and take such other actions as may reasonably be requested in order more effectively to relieve Seller of any obligations being assumed by Buyer hereunder. 17.3. ASSIGNMENT. Except as set forth in Sections 10.5 (1031 Exchange) and 10.6 (Trust), neither party may assign this Agreement without the prior written consent of the other party hereto; provided, however, that either party may assign this Agreement to one or more direct or indirect subsidiaries so long as (i) the assigning party remains liable hereunder, (ii) the assignment is made prior to any filings with the FCC, FTC, DOJ, including any HSR filing, and (ii) such assignment will not delay any consent required to be obtained hereunder, including but not limited to HSR Clearance, DOJ Consent and FCC Consent, or delay the Closing in any respect. With respect to any permitted assignment, the parties shall take all such actions as are reasonably necessary to effectuate such assignment, including but not limited to cooperating in any appropriate filings with the FCC or other governmental authorities. All covenants, agreements, statements, representations, warranties and indemnities in this Agreement by and on behalf of any of the parties hereto shall bind and inure to the benefit of their respective successors and permitted assigns of the parties hereto. 17.4. AMENDMENTS. No amendment, waiver of compliance with any provision or condition hereof or consent pursuant to this Agreement shall be effective unless evidenced by an instrument in writing signed by the party against whom enforcement of any waiver, amendment, change, extension or discharge is sought. 17.5. HEADINGS. The headings set forth in this Agreement are for convenience only and will not control or affect the meaning or construction of the provisions of this Agreement. 17.6. GOVERNING LAW. The construction and performance of this Agreement shall be governed by the laws of the State of Texas without giving effect to the choice of law provisions thereof. 17.7. NOTICES. Any notice, demand or request required or permitted to be given under the provisions of this Agreement shall be in writing, including by facsimile, and shall be deemed to have been received on the date of personal delivery, on the third day after deposit in the U.S. mail if mailed by registered or certified mail, postage prepaid and return receipt requested, on the day after delivery to a nationally recognized overnight courier service if sent by an overnight delivery service for next morning delivery or when delivered by facsimile transmission, and shall be addressed as follows (or to such other address as any party may request by written notice): if to Seller: c/o Clear Channel Broadcasting, Inc. 200 Concord Plaza, Suite 600 San Antonio, Texas 78216 Attention: President Facsimile: (210) 822-2299 with a copy (which shall not constitute notice) to: Graydon, Head & Ritchey 1900 Fifth Third Center 511 Walnut Street Cincinnati, Ohio 45202 Attention: John J. Kropp, Esq. Facsimile: (513) 651-3836 if to Buyer: c/o Hispanic Broadcasting Corporation 3102 Oak Lawn Avenue, Suite 215 Dallas, Texas 75219 Attention: President Facsimile: (214) 525-7750 with a copy (which shall not constitute notice) to: Hallett & Perrin 717 N. Harwood, 14th Flr. Dallas, Texas 75201 Attention: Bruce H. Hallett, Esq. Facsimile: (214) 953-0576 17.8. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which will be deemed an original and all of which together will constitute one and the same instrument. 17.9. NO THIRD PARTY BENEFICIARIES. Nothing herein expressed or implied is intended or shall be construed to confer upon or give to any person or entity other than the parties hereto and their successors or permitted assigns, any rights or remedies under or by reason of this Agreement. 17.10. SEVERABILITY. The parties agree that if one or more provisions contained in this Agreement shall be deemed or held to be invalid, illegal or unenforceable in any respect under any applicable law, this Agreement shall be construed with the invalid, illegal or unenforceable provision deleted, and the validity, legality and enforceability of the remaining provisions contained herein shall not be affected or impaired thereby. 17.11. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding of the parties hereto and supersedes any and all prior agreements, arrangements and understandings relating to the matters provided for herein. This Agreement does not supersede any confidentiality agreement relating to the Stations. [SIGNATURE PAGE FOLLOWS] SIGNATURE PAGE(S) TO ASSET PURCHASE AGREEMENT IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. SELLER: CLEAR CHANNEL BROADCASTING, INC. By: /s/ Jerome L. Kersting ----------------------------------------- Jerome L. Kersting, Senior Vice President CLEAR CHANNEL BROADCASTING LICENSES, INC. By: /s/ Jerome L. Kersting ----------------------------------------- Jerome L. Kersting, Senior Vice President AMFM RADIO LICENSES LLC By: /s/ William S. Banowsky, Jr. ----------------------------------------- Name: William S. Banowsky, Jr. Title: Executive Vice President AMFM OHIO, INC. By: /s/ William S. Banowsky, Jr. ----------------------------------------- Name: William S. Banowsky, Jr. Title: Executive Vice President AMFM HOUSTON, INC. By: /s/ William S. Banowsky, Jr. ----------------------------------------- Name: William S. Banowsky, Jr. Title: Executive Vice President BUYER: HISPANIC BROADCASTING CORPORATION By: /s/ Jeffrey T. Hinson ----------------------------------------- Jeffrey T. Hinson, Senior Vice President and Chief Financial Officer EX-11 4 EXHIBIT 11 Exhibit 11 HISPANIC BROADCASTING CORPORATION AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (in thousands except per share data)
Three Months Year Ended December 31, Ended Year Ended September 30, ------------------------------ December 31, ------------------------ 1999 1998 1997 1996 1996 1995 ------- ------- ------- ------ -------- ------- EARNINGS: Income (loss) from continuing operations $34,176 $26,884 $18,772 $2,064 $(29,157) $4,319 Preferred stock dividends -- -- -- -- 23 27 ------- ------- ------- ------ -------- ------ Net income (loss) applicable to common stockholders $34,176 $26,884 $18,772 $2,064 $(29,180) $4,292 ======= ======= ======= ====== ======== ====== BASIC EARNINGS PER SHARE: Continuing operations $ 0.67 $ 0.55 $ 0.45 $ 0.09 $ (1.41) $ 0.21 Discontinued operations -- -- -- -- (0.49) (0.03) Extraordinary loss -- -- -- -- (0.36) -- ------- ------- ------- ------ -------- ------ Net income (loss) per share $ 0.67 $ 0.55 $ 0.45 $ 0.09 $ (2.26) $ 0.18 ======= ======= ======= ====== ======== ====== DILUTED EARNINGS PER SHARE: Continuing operations $ 0.66 $ 0.54 $ 0.45 $ 0.09 $ (1.41) $ 0.20 Discontinued operations -- -- -- -- (0.49) (0.03) Extraordinary loss -- -- -- -- (0.36) -- ------- ------- ------- ------ -------- ------ Net income (loss) per share $ 0.66 $ 0.54 $ 0.45 $ 0.09 $ (2.26) $ 0.17 ======= ======= ======= ====== ======== ====== NUMBER OF SHARES ON WHICH NET INCOME (LOSS) PER SHARE IS BASED: Weighted average common shares before dilutive effect of common stock equivalents 50,783 49,021 41,671 23,095 20,590 20,021 Common stock equivalents: Stock options 674 318 121 -- -- 1,590 Employee Stock Purchase Plan 7 9 -- -- -- -- ------- ------- ------- ------ -------- ------ Weighted average common shares 51,464 49,348 41,792 23,095 20,590 21,611 ======= ======= ======= ====== ======== ======
EX-12.1 5 EXHIBIT 12.1 Exhibit 12.1 HISPANIC BROADCASTING CORPORATION AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (in thousands except ratio)
Three Months Year Ended December 31, Ended Year Ended September 30, ------------------------------- December 31, ------------------------ 1999 1998 1997 1996 1996 1995 -------- -------- -------- ------------ -------- -------- EARNINGS: Income (loss) from continuing operations before income taxes $ 57,989 $ 44,624 $ 31,389 $ 2,164 $(29,092) $ 4,469 Fixed charges 3,054 3,292 4,863 2,965 11,793 7,055 -------- -------- -------- ------- -------- ------- Earnings as adjusted (A) $ 61,043 $ 47,916 $ 36,252 $ 5,129 $(17,299) $11,524 ======== ======== ======== ======= ======== ======= FIXED CHARGES: Interest expense $ 1,607 $ 2,046 $ 3,947 $ 2,867 $ 11,241 $ 6,607 Interest portion of rental expense (1) 1,447 1,246 916 98 552 448 -------- -------- -------- ------- -------- ------- Total fixed charges (B) $ 3,054 $ 3,292 $ 4,863 $ 2,965 $11,793 $ 7,055 ======== ======== ======== ======= ======== ======= Ratio of earnings to fixed charges (A) divided by (B) 20.0 14.6 7.5 1.7 - 1.6 Deficiency of earnings to cover fixed charges (B) minus (A) $ - $ - $ - $ - $ 29,092 $ -
(1) Management of the Company believes one-third of rent expense is representative of the interest component of rent expense. EX-12.2 6 EXHIBIT 12.2 Exhibit 12.2 HISPANIC BROADCASTING CORPORATION AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (in thousands except ratio)
Three Months Year Ended December 31, Ended Year Ended September 30, ------------------------------- December 31, ------------------------ 1999 1998 1997 1996 1996 1995 -------- -------- -------- ------------ -------- -------- EARNINGS: Income (loss) from continuing operations before income taxes $ 57,989 $ 44,624 $ 31,389 $ 2,164 $(29,092) $ 4,469 Fixed charges 3,054 3,292 4,863 2,965 11,793 7,055 -------- -------- -------- ------- -------- ------- Earnings as adjusted (A) $ 61,043 $ 47,916 $ 36,252 $ 5,129 $(17,299) $11,524 ======== ======== ======== ======= ======== ======= FIXED CHARGES: Interest expense $ 1,607 $ 2,046 $ 3,947 $ 2,867 $ 11,241 $ 6,607 Interest portion of rental expense (1) 1,447 1,246 916 98 552 448 -------- -------- -------- ------- -------- ------- Total fixed charges 3,054 3,292 4,863 2,965 11,793 7,055 Preferred stock dividends (2) - - - - 20 75 -------- -------- -------- ------- -------- ------- Total fixed charges and preferred stock dividends (B) $ 3,054 $ 3,292 $ 4,863 $ 2,965 $ 11,813 $ 7,130 ======== ======== ======== ======= ======== ======= Ratio of earnings to combined fixed charges and preferred stock dividends (A) divided by (B) 20.0 14.6 7.5 1.7 - 1.6 Deficiency of earnings to cover combined fixed charges and preferred stock dividends (B) minus (A) $ - $ - $ - $ - $ 29,112 $ -
(1) Management of the Company believes approximately one-third of rent expense is representative of the interest component of rent expense. (2) Represents pretax earnings required to cover preferred stock dividends. EX-21 7 EXHIBIT 21 EXHIBIT 21 Subsidiaries of Registrant HBC Broadcasting Texas, L.P. HBC Chicago, Inc. HBC Florida, Inc. HBC GP Texas, Inc. HBC Houston License Corporation HBCi, Inc. HBC Illinois, Inc. HBC-Las Vegas, Inc. HBC License Corporation HBC Network, Inc. HBC New York, Inc. HBC Phoenix, Inc. HBC San Diego, Inc. HBC Tower Company, Inc. KCYT-FM License Corp. KECS-FM License Corp. KESS-AM License Corp. KESS-TV License Corp. KHCK-FM License Corp. KICI-AM License Corp. KICI-FM License Corp. KLSQ-AM License Corp. KLVE-FM License Corp. KMRT-AM License Corp. KTNQ/KLVE, Inc. KTNQ-AM License Corp. La Oferta, Inc. License Corp. No. 1 License Corp. No. 2 MiCasa Publications, Inc. Momentum Research, Inc. Spanish Coast to Coast, Ltd. T C Television, Inc. Tichenor License Corporation TMS Assets California, Inc. TMS License California, Inc. WADO Radio, Inc. WADO-AM License Corp. WLXX-AM License Corp. WPAT-AM License Corp. WQBA-AM License Corp. WQBA-FM License Corp. EX-23 8 EXHIBIT 23 Exhibit 23 INDEPENDENT AUDITORS' CONSENT The Board of Directors Hispanic Broadcasting Corporation: We consent to incorporation by reference in the Registration Statements on Form S-3 (No. 333-42171) and Form S-8 (Nos. 333-43483 and 333-43495) of Hispanic Broadcasting Corporation of our report dated February 10, 2000, relating to the consolidated balance sheets of Hispanic Broadcasting Corporation (formerly Heftel Broadcasting Corporation) and subsidiaries as of December 31, 1999 and 1998 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1999, and the related financial statement schedule, which report appears in the December 31, 1999 Annual Report on Form 10-K of Hispanic Broadcasting Corporation. /s/ KPMG LLP Dallas, Texas March 29, 1999 EX-27 9 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 215,136 0 42,476 1,855 0 256,582 64,140 23,217 1,157,138 25,445 1,448 0 0 54 1,026,199 1,157,138 0 197,920 0 139,893 0 1,869 1,607 57,989 23,813 34,176 0 0 0 34,176 0.67 0.66
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